Does Car Insurance Check Credit?

Credit-based insurance scores are used by many auto insurance companies to decide who to insure and how much. These scores are not the same as credit scores that are used for lending and have been shown to correlate with the likelihood that consumers file insurance claims. These scores can only be one factor that influences your insurance rates and options. Here are the facts.

What does your credit score have to do with your insurance rate?

The types of credit scores that lenders and credit card issuers use to evaluate your creditworthiness won’t affect your insurance rates. These scores include many VantageScore(r), credit scores and FICO(r). They are used to predict when a credit applicant might miss a payment. These scores can impact your ability to borrow or the interest rate that you receive. However, they are not used for insurance purposes.

FICO, LexisNexis and other companies also create credit-based insurance scores. Credit-based insurance scores are similar to general credit scores. They are based largely on your credit report from Equifax, TransUnion, or Experian. Credit-based insurance scores help insurance companies to understand how likely it is that someone will file claims that could result in higher premiums than they collect.

Factors that influence your credit scores can also affect your credit-based insurance scores. These factors include past payments made on time, current debt balances, and whether any other credit-based insurance scores have been affected. Poor credit may make it harder to get approved for auto insurance. You may also have to pay higher premiums.

However, insurance companies generally can’t make a decision based solely on your credit–it’s only one of many factors. Additionally, some states ban or strictly limit the use of credit-based insurance scores for use in auto insurance decisions.

What other factors do auto insurers consider when determining rates?

Your credit won’t dictate whether or not you are offered a policy. Auto insurance companies consider many criteria when setting rates, including:

  • Driving record: A clean driving record will help you to get lower auto insurance rates.
  • Your location: Insurance costs can vary depending on where you live. Some areas are more susceptible to vandalism, theft, and accidents than others.
  • Demographics: Your rates could be affected by your marital status, sex, and age.
  • The type of vehicle: Some vehicles are more expensive to insure than others, which is one thing you may want to consider when buying a vehicle.
  • The types of insurance: Auto insurance can encompass different types of coverage, including liability, collision and comprehensive coverage. Rates will also be affected by your deductibles or insurance limits.
  • Discounts: You may be eligible for a wide range of discounts that can lead to lower insurance rates, such as a multi-policy discount if you also have homeowners or renters insurance with the same company.
  • The company: Auto insurance providers may specialize in different types of coverage or drivers and weight factors differently. Getting quotes from several companies can help you find the best rate.

Credit Score Does Not Get Hurt by Insurance Requests

An insurance company will add a credit inquiry record to your credit file when they check your credit. You’ll see this credit inquiry if you review a copy of your credit report, but because it’s a soft inquiry, it won’t impact your credit scores. In contrast, hard inquiries, the type that can come from applying for a new loan or credit card, can slightly hurt your credit scores temporarily.

You don’t have to worry about rate shopping or submitting multiple insurance applications because applying for auto insurance won’t affect your credit. To ensure that you get the best deal, it is a good idea to get quotes on a new policy at least once a year.

How to improve your credit score before applying for car insurance

Because credit-based insurance scores are largely based on the same underlying information that as other types of credit scores, similar actions can help you improve all your credit scores. These are:

  • Be punctual and pay your bills in full. Your credit score can be affected by missing payments, accounts being sent to collections or filing for bankruptcy. However, timely payments can improve your credit score.
  • Reduce your debts. Having outstanding debts can hurt your credit scores, as can using a large portion of your available credit limit on your credit cards. Paying your credit card bill in full each month and keeping your balances low can help you score and save money on interest.

Your credit score may improve over time as your credit history grows. Experience with both revolving credit and installment accounts may be a plus. You should also be cautious when applying for credit, as hard inquiries may temporarily lower your score.

Get your FICO Score Free

Although you cannot check your credit-based insurance scores directly, Experian gives you access to your FICO(r), Score, based on your Experian credit reports. To monitor your score and see if your actions have a positive or negative impact on your credit, you can access it from Experian. You might also want to check if your credit score has increased in a significant way.