I Got a Car Insurance Quote. Will My Credit Score Go Down?

Shopping around for car insurance quotes is a smart move. It can help you get the best deals and ensure you're getting the coverage types and limits that will best protect you if you're in an accident.

But does getting car insurance quotes affect your credit score?

Thankfully, getting an auto insurance quote doesn't hurt your credit score. However, your credit score does play a part in how much you'll pay for auto insurance. The relationship between car insurance rates and your credit score can be a little confusing. But understanding a few key points can help you make the best decision for you and your credit.

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Key takeaways

Most insurers use your credit score and credit history to help determine how much to charge.
Some states ban insurance companies from using your credit score when calculating premiums.
Car insurance quotes perform a soft credit check, which doesn't damage your score.
Credit-based insurance scores are only one factor in determining your insurance premium.

Does getting a quote for auto insurance hurt your credit?

I generally comparison shop my car insurance rates a couple of times a year. I request quotes online and usually have to check a box authorizing the insurance company to check my credit score.

While it might seem unusual, it's standard practice in most states. When you request a quote or your policy renews, insurance companies check your credit and assign you a credit-based insurance score.

However, the credit-based insurance score does not impact your actual credit score, and insurance companies don't use the same scores that lenders do.

Insurance companies use your credit score to help them calculate risk and gauge how much you will likely cost to insure. If you have a higher credit score, studies have shown that you're less likely to file an insurance claim, making you a safer bet for the insurance company. Individuals with lower credit scores tend to exhibit riskier driving behavior, which leads to more claims and may result in higher costs for the insurance company.

However, some states limit or completely ban the use of auto insurance scores when issuing a new policy, obtaining a price quote, or renewing an existing policy.

Soft pull credit inquiry

As part of the quoting or policy renewal process, car insurance companies perform what's known as a "soft pull," or soft credit check.

There are two types of credit inquiries — "hard" and "soft." Each one has a different effect on your credit score.

Soft Pull: A soft pull, sometimes called an "involuntary inquiry," on your credit doesn't take points off your credit score. However, the inquiry can be viewed on your credit report by you (when you check your report) or potential lenders.

A soft pull might also happen when a credit card company sends you a preapproval notice or when a potential employer or landlord checks your credit.

Hard Pull: When you apply for a new credit card, auto loan, or mortgage, the lender will likely do a hard credit pull. A hard pull affects your credit score, but the amount of points lost from your score varies and only happens after you have completed a full credit card or loan application.

Lenders use a hard pull to check your credit score, credit limits, usage, payment history, and other details. This helps the lender determine if they want to offer you credit and how much. A hard inquiry can stay on your credit report for two years. However, some reporting agencies only factor in credit inquiries made within the past year.

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Auto insurance score

As part of the process for determining your car insurance premium, the insurance company assigns each customer an auto insurance score, also known as a "credit-based insurance score," if allowed by state law.

Your credit-based insurance score is not the same as your credit score, although both are used to help predict risk. Credit scores help predict your ability to pay back debt. An auto insurance score predicts the likelihood of you filing a car insurance claim and how much that claim will likely cost the insurance company.

Based on your auto insurance score and other information, the insurance company determines how much to charge for a new policy. Your auto insurance score can also contribute to an increase in your premium when your policy renews. Each insurance company has its own method of calculating and incorporating credit-based insurance scores to set rates.

Factors that go into auto insurance scores

Several different companies create auto insurance scores for insurance companies. While each company is different, they typically consider some of the same data.

For example, FICO, a company that also specializes in credit scores, uses several factors to calculate your auto insurance score, including:

Payment history
Outstanding debt
Credit history length
How often you request new credit
Your credit mix (like having a credit card, mortgage, and auto loan, etc.)
Bankruptcies or foreclosures

When you request a quote from an insurance company, you authorize the insurer to do a soft pull on your credit. You also typically need to provide specific information, such as your full name, birth date, driver's license number, and Social Security number, as part of your quote request.

Sometimes, a company will request that you authorize a credit check so they can complete your application. However, this should still be a soft credit pull and won't affect your credit score.

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Other factors affecting insurance premiums

According to the National Association of Insurance Commissioners, insurance companies can only use your credit-based auto insurance score as one factor in the underwriting process.

Some of the other factors insurance companies consider when determining premiums and underwriting insurance policies include:

Your zip code
The age of any drivers listed on the policy
The make, model, and age of your car
How many miles you drive annually

You can ask the insurance company if a credit-based insurance score was a factor in their underwriting process. You can also ask what risk category the company assigned you to after you receive your quote.

State Laws

In most states, insurance companies can use credit-based insurance scores to determine who qualifies for coverage and the premium amount. However, insurance companies generally can't refuse to offer new coverage or cancel an existing policy based on your credit score alone.

Seven states restrict or altogether ban auto insurance companies from using your credit score or credit history when calculating your rates. Those states are:

California
Hawaii
Maryland
Massachusetts
Michigan
Oregon
Utah

California, Hawaii, and Massachusetts entirely ban the use of your credit information when determining your eligibility and rates. The other four states allow the insurance company to use your credit information but only under certain circumstances, such as when the company offers you an installment payment plan.

Actions that help you improve your credit score, like paying bills on time and keeping credit card balances as low as possible, can help improve your auto insurance score too. If you are behind on payments, consider working with the creditor to bring your account up to date. Develop a plan to pay off debt to reduce your credit usage and available credit balance.

FAQs

What car insurance does not use credit scores?

According to the Fair Isaac Corporation (FICO), 95% of auto insurers use credit-based insurance scores in states where it's legally allowed. Depending on where you live, your car insurance company may use your credit score, credit history, and other factors to determine eligibility, set premiums, and assess risk.

Does a car insurance claim affect your credit score?

A car insurance claim does not affect your credit score. However, a car accident may indirectly affect your credit score in various ways. For instance, an at-fault accident on your driving record may mean higher insurance premiums. If you have lots of medical or repair bills or are no longer able to work, you may have a harder time keeping up with your home or loan payments, which can affect your credit score negatively.

Can you build credit through car insurance payments?

No, paying for your car insurance does not directly help you build credit. However, paying your insurance bill late (or not at all) could harm your credit if your insurance company refers your account to a debt collection agency. In some instances, debt collectors may report delinquent payments to credit reporting agencies, which can negatively impact your credit score and stay on your credit history for seven to 10 years.

What bills build credit fast?

In some cases, paying your rent, utilities, and even your phone bill can help you build credit. Rent, utility, and phone bills are often referred to as alternative data and might be reported to the credit bureaus, which calculate your credit score. Paying your bills on time can help you increase your score since payment history is a large part of your credit score.

If your rent and utilities aren't reported directly to the credit bureaus, consider signing up with a third-party service to get payments reported. However, they may charge a fee or may not report to all three major credit bureaus: Equifax, Experian, and TransUnion.

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Bottom line

Getting multiple car insurance quotes is a good idea, especially since it doesn't hurt your credit score. Taking action to improve your credit score can also help improve your auto insurance score. Pay your bills on time, reduce your credit card and loan balances as much as possible, and limit the amount of new credit you apply for.

While your auto insurance score is just one factor in how much you pay for your car insurance premium, taking steps to improve it can help you pay less and ensure you have the protection you need.

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