Quick answer
Your credit score can affect homeowners and auto insurance rates, but a higher score does not lower them automatically. Insurers typically check credit only when you first get a quote or sign up, using a soft inquiry that does not hurt your score. Your agent can request a re-score after a significant change.
This article explains how credit ratings influence homeowners and auto insurance rates, clarifying that insurance companies use credit scores through soft inquiries only at the start of a policy. It also highlights that improved credit scores do not automatically lower rates unless the insurer is asked to re-check the credit score through a re-score process.
Key Takeaways:
- Insurance companies use your credit score as one factor in setting rates, but they only check it once when you first get a quote or sign up.
- Credit checks by insurers are soft inquiries and do not negatively impact your credit score like hard inquiries do.
- If your credit score improves, you must request a re-score from your insurance company to potentially lower your rates; this is not done automatically.
- Setting up credit monitoring can help you track significant changes in your credit score that might affect your insurance rates.
I was recently asked this question by one of our The Oak Insurance Group clients, and thought I would share the answer here for our readers.
There are a lot of things that go into homeowners and auto insurance rates, one of them being credit. I’ve heard a lot of complaints from people who don’t like the fact that insurance companies use credit in their underwriting.
Some people have absolutely no idea that it’s used in the rate at all.
At the end of the day, there’s not much we can do about it though. Insurance companies have been using credit in their rates for decades, and that’s not likely to change.
By the way, insurance companies don’t pull your credit like a mortgage company or credit card company does. There is no negative impact on your credit as a result of an insurance company looking at it.
When I say “pull” what I mean is that the insurance company is doing what’s called a soft inquiry, which is not the same thing as having your credit pulled (hard inquiry).
When does credit play a role in insurance rates?
It’s important to understand that insurance companies don’t continuously check or monitor your credit. Usually, they only check it when you first get a quote and/or sign up with them in the very beginning.
This means that if your credit score increases (or decreases) your insurance company does not automatically know about it.
So, to my customers question of whether or not his increased credit score will lower his rates, the answer is not automatically.
What has to be done on our side as the agent is contact the carrier the insurance and ask them to do what’s commonly referred to as a “re-score”. This is when the insurance company can re-run the person’s credit (soft inquiry) to see if there is any positive bearing on the rate.
This isn’t something that the insurance company is going to let the agency do every single year, so it’s not worth even asking unless there has been a significant change in your credit score, and only you as the customer would know if that was the case.
If you’d like to get a better handle on your credit rating, it could be helpful to setup credit monitoring. We hope this was helpful! As always, leave us comment below if you have any questions.
Keep Reading
- Auto Insurance from The Oak Insurance Group
- Back-to-School Insurance Review: Protecting Student Drivers in Georgia
- Before Renting a Car This Summer Here is What You Need to Know
- Auto insurance facts & statistics (Insurance Information Institute)
Frequently asked questions
Does an insurance company checking my credit hurt my credit score?
No. Insurance companies use a soft inquiry, not the hard inquiry a mortgage or credit card company uses, so there is no negative impact on your credit. Credit is one of many factors that go into homeowners and auto insurance rates.
When do insurance companies check my credit?
Insurers do not continuously check or monitor your credit. They usually check it when you first get a quote or sign up. This means your insurance company does not automatically know if your credit score goes up or down later.
If my credit score improves, will my insurance rates go down?
Not automatically. Your agent has to contact the carrier and request a re-score, where the insurer re-runs your credit with a soft inquiry to see whether it positively affects your rate. Results are not guaranteed and depend on the insurer.
What is an insurance re-score?
A re-score is when the insurance company re-runs your credit, using a soft inquiry, to see if a changed score has a positive bearing on your rate. Insurers will not allow it every year, so it is only worth asking after a significant credit change.
How can I keep track of my credit for insurance purposes?
We suggest setting up credit monitoring to get a better handle on your credit rating and notice significant changes. Since only you would know about a major improvement, you can then ask your agent whether a re-score makes sense for your policy.
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