Find Cheap Auto Insurance Quotes
We found car insurance rates could vary by more than $2,400 based on credit score and insurer. For every company analyzed, the difference between poor and very good credit meant more than a $900 difference in premiums.
| Company | Annual rate with average credit | Annual rate with bad credit | Increase |
|---|---|---|---|
| $2,679 | 113% |
Insurers also do not have a unified definition of credit tiers, with slightly different ranges depending on company.
Do Insurance Quotes Hurt My Credit
Nobody wants to be stuck with an insurance plan that costs them too much and covers them too little. But maybe youve heard the myth that getting an insurance quote will hurt your credit, leaving you hesitant to shop around for the right coverage. Weve got some good news no matter how many insurance quotes you get, your credit score is safe. Heres why you should be worry-free when youre shopping for insurance.
But Does It Affect Your Score
But the question still remains. If car insurers pull your credit report during the application process, does that actually affect your credit? After all, . But the credit report a car insurer pulls wont actually affect your score, generally.
Why? Its because insurance companies do whats called a soft pull on your credit. There are two types of credit inquires, called a soft pull and a hard pull:
- A soft pull, also known as an involuntary inquiry, occurs when creditors want to send you pre-approved offers. That credit card solicitation you received in the mail was probably the result of a soft pull on your credit. Potential employers may check your credit as do your existing credit card accounts. Both of these are soft pulls. And if you check your own credit score, thats considered a soft pull, too. The key is that a soft pull happens when you arent actively seeking out credit. So it has no effect on your credit score.
- A hard pull, also known as a voluntary inquiry, occurs anytime you actively seek credit and fill out an application. The lender will run your credit report and determine whether to approve your credit application and under what terms. A hard pull on your credit report indicates that youre shopping for credit. So that will affect your credit score.
Heres what other major insurers disclosure about pulling credit reports:
State Farm says:
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How Credit Scores And Credit
Since their development in the 1990s, insurance companies have been able to use to help determine who to offer insurance to and how much to charge in premiums. Similar to the credit scores that lenders use, credit-based insurance scores are based on your credit report and show the relative risk of working with different people. But that’s just about where the similarities end.
The scores that FICO® and VantageScore® develop for lenders predict the likelihood that someone will be 90 days past due on a bill within the next 24 months. But insurance scores predict the likelihood that someone will file an insurance claim.
Whats A Good Insurance Credit Score
Its hard to say what a good credit-based insurance score is because each company can decide what score it defines as good.
For instance, one insurance company might decide a score of 750 or better unlocks the lowest car insurance rates, while another might instead require a score of 700 or better to receive its best price. And because scores come from different credit-reporting companies, those numbers wont always be measured on the same scale.
To give you an idea of the ranges, LexisNexis offers credit-based insurance scores through credit bureau Experian from 200 to 997. Here is an example of scores and rankings from the LexisNexis website:
-
Less desirable: Under 500.
TransUnions website states that a good score is around 770 or higher.
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What Is The Difference Between A Fico Credit Score And A Credit
Credit-based insurance scores differ from the everyday FICO score used for loans and credit card approvals. Essentially, credit scores are used to determine how much money you make and how able you would be to pay back a loan amount. Credit-based insurance scores are used to determine how well you handle your money. This can help insurers know how likely you are to pay your bills on time or file a claim. Your income level does not factor into a credit-based insurance score.
Additionally, home insurance companies dont have access to your actual credit score or any of the related information. The data that is used to compile a credit-based insurance score is translated into each companys unique scoring system. Some companies use numbers to represent insurance scores, some use letters and some use a combination. Because of this, your credit-based insurance score will be different with each carrier. However, you might be able to make a pretty good guess from understanding your regular credit score. FICO credit scores range between 300 to 850. Although credit scores and credit-based insurance scores arent the same things, you probably have a higher credit-based insurance score if you have a high credit score.
What If Theres A Mistake In My Credit History
If you think theres a mistake in your credit history thats impacting your insurance premiums, contact the credit reporting agencies. Once the mistake has been corrected, notify your insurance company in writing. They must reissue or re-rate the policy back to the policys effective date.
Youre allowed to request a free copy of your credit report once a year from each of the three nationwide credit reporting bureaus. The Federal Trade Commission has authorized annualcreditreport.com to provide free credit reports.
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So Does A Quote Impact My Score
An insurance company youre looking to get a policy quote from will ask for a copy of your credit score. An inquiry and pull will be added to your credit report each time an insurance company requests your credit report. These inquiries dont affect your credit score because theyre classified as a soft pull.
A soft pull occurs when credit companies would like to send you pre-approved offers. They are also done when insurance companies want to see your credit score number and report. Potential employers may ask for a soft pull on your credit, too.
Regardless of why a company did a soft pull, they mean you arent actively seeking out credit. And because of that, they do not affect your credit score whatsoever.
What Credit Scores Do Insurersuse
Thecredit score that insurers consider isnt like the VantageScore or FICO scorethat lenders use. Instead, insurers review the information in your creditreport to calculate a credit-based insurance score. Here are some of thefactors from your credit report that insurers may evaluate in order to give you a quote:
- Payment history
- How much of your creditlimits youre currently utilizing
- How long it has been sinceyou applied for a loan or credit card
- The amount of overall debtyou have
- The number of accounts youhave
- The types of accounts youhave
- The age of your credit
- Any collections, foreclosuresor bankruptcies noted
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How Does Poor Credit Affect Car Insurance
The use of credit by auto insurance companies may seem like a stretch, but the insurance industry contends data supports it.
Studies, such as an often referred to Federal Trade Commission report, find a correlation between the number and cost of claims and a drivers credit score. Following this logic, drivers with poor credit are viewed as higher risks, so pay increased auto insurance premiumsin most states.
On the other side of the issue are consumer advocacy groups, such as the Consumer Federation of America, which have asserted for years that using credit as an auto insurance rating factor is fundamentally discriminatory.
A few states agree that the use of a drivers credit is not the best practice.California, Hawaii, Massachusetts and Michigan ban using credit to set auto insurance rates. There have been other state and even federal legislative discussions on prohibiting credit as a rating factor for car insurance, but none have yet progressed into laws.
What Company Has The Best Rates For Good Drivers With Poor Credit
Out of the seven largest auto insurers in the U.S., Geico, on average, has the best rates for good drivers with poor credit.
These rates are for full coverage policies, which include liability, comprehensive, collision, uninsured/underinsured motorist protection and any additional state-mandated coverage.
Here are the annual car insurance rates for good drivers with good and poor credit, averaged across all states:
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*USAA is available only to active military, veterans and their families. |
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Your Credit Score Could Affect Your Policy Rate
The cost of your insurance premium could be affected by your credit score. The higher your credit score is, the lower your payments will almost always be. If your credit score is low and there are several negative items on your report, your insurance premiums will likely be more expensive than policyholders who have good credit.
Statistics from Consumer Reports show that drivers with good credit scores paid on average between $68 to $526 more each year for their insurance than those who had excellent credit scores. If you are in an accident or receive a traffic violation that causes your premium to go up, having bad credit could contribute to the price hike.
Remember that you have the right to obtain a free copy of your credit report. If your insurer has recently raised your premium due to poor credit history, its in your best interest to pull your credit report and look at your record for any mistakes or unfamiliar activity.
If you are currently searching for a better car insurance rate because your credit score has gotten worse or for any other reason, check out Compare.com for a fast and easy process. There, you can obtain quotes from over 60 of the top auto insurance companies to find a new policy that works best for your budget.
In fact, many of the companies Compare.com works with specialize in car insurance for drivers with below-average credit, meaning you could find some big savings by switching from one of the larger carriers.
Does Your Credit Score Affect Homeowners Insurance
How much you pay for homeowners insurance can depend on many factors, including where you live, the type of home you have, the amount of coverage you want and your credit-based insurance score. While your credit likely won’t be the main factor insurers consider when pricing your coverage, understanding the role it plays as well as how to improve it can help you secure a cheaper premium.
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Improve Your Credit To Qualify For Better Homeowners Insurance Rates
You may be able to get homeowners insurance with bad credit, but improving your credit may help you qualify for lower insurance premiums. It can also lead to lower rates on loans and credit cards, and may open up an opportunity to save more money by refinancing your mortgage.
Fortunately, many of the moves you can make to improve your credit-based insurance scores will also improve your other credit scores. Focus on:
- Paying your bills on time
- Paying down debts
Do Any States Prohibit The Use Of Credit Scores In Home Insurance Rates
Yes, there are four states that do not allow insurance companies to use credit while rating home insurance policies: California, Maryland, Massachusetts and Washington. Washingtons ban is recent and temporary it was put into place in early 2021 for a period of three years. Other states, like Michigan, dont allow insurers to cancel or deny coverage based on your credit, but it can be used to rate your policy homeowners policy.
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Why Will My Credit History Be Checked
Car insurance prices depend on your personal circumstances. Thatâs why you’re asked to input information such as your name, address, employment status, marital status and past claims history when searching for a quote.
For example, if you live in an area with a high crime rate, you might pay more than someone who lives somewhere with a low crime rate. Or if you’ve made a claim on your insurance in the past, you’ll likely pay more than someone who hasn’t claimed before.
The insurer will perform a soft check based on this information to check all the details you’ve provided are correct. A soft check would only be visible to you and the credit reference agency providing your credit score.
How Does Credit Score Affect Car Insurance Rates
A driver’s credit score has a noticeable effect on car insurance prices. The vast majority of insurers use credit score as a factor, including every major company.
Your credit score, also called a FICO Score, is calculated based on five factors, all related to borrowing history and current situation.
- Payment history: 35%
- Length of credit history: 15%
- New credit: 10%
| Tier | |
|---|---|
| Poor | 300-579 |
However, it is not as simple as a certain score matching a certain premium. Rather, insurance companies take your full credit report and run it through an algorithm to calculate an “insurance score.”
An insurance score isn’t a measure of how creditworthy you are, but rather how risky you are from an auto insurance perspective, based on your creditworthiness.
How much your score affects your premium may vary between states. Five states â California, Hawaii, Massachusetts, Michigan and, temporarily, Washington â ban the use of any sort of credit report as a factor in determining insurance rates. Instead, these states opt to base rates on driving record, location and other characteristics.
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How Getting Car Insurance Quotes Can Affect Your Credit Score
Getting a quote for car insurance won’t affect your credit score.
When you ask for a quote, insurance companies will run a soft check at most.
It’s only when you apply that a hard check comes into it. And again, that’s only if you pay monthly.
When you take out an insurance policy, you’ll be given a 14-day ‘cooling-off period‘ in which you can change your mind.
If you do change your mind and decide to go with another insurer, the first hard check will be on your record, and you’ll have another one for your new application.
That might be a problem if you’re trying to improve your credit score.
What Are The Types Of Credit Inquiries
There are two types of credit inquiries:
- Soft Pull: A soft pull is also called an involuntary inquiry. It’s used when creditors send potential customers preapproved offers and when potential employers check job applicants’ credit history. Checking your own credit score is also considered a soft pull because you aren’t actively seeking credit. It has no effect on your credit score.
- Hard Pull: A hard pull is voluntary, which means you asked for the credit check because you are applying for credit. You complete an application giving a lender permission to run a credit check, and they use the information to decide whether to approve your credit application and determine its terms. A hard pull indicates you’re actively shopping for credit, and it will be visible to other lenders. Too many hard pulls are bad for your credit score.
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Is There A Difference Between A Credit Score And An Insurance Score
Yes. Insurance companies dont use your credit score but they do calculate an insurance score.
Your credit score is about your creditworthiness and how likely you are to miss payments. A credit-based insurance score uses your credit history but focuses on predicting the likelihood of you making a claim in the near future.
Insurance companies and the data analytics companies they buy information from, such as LexisNexis, dont disclose details of how they calculate insurance scoresits proprietary information. However, according to the Insurance Information Institute, factors the score might include are:
- Length of credit history
Why A Bad Credit Score Could Mean You Can’t Get Covered
When you spread the cost of your car insurance over the year, most insurance companies will ask for a deposit up front. So you’ll still need to have some cash at hand.
If paying monthly is your only option, an insurance company will hard check your credit report before they approve your application. If you have a bad credit score, they could decide you’re too risky to lend to and reject your application.
If you have a bad credit rating you might be better off finding another way to pay for your car insurance – like a credit card – rather than taking out another loan with an insurer.
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Best Practice Tips For Staying On Top Of Your Credit Rating
Here are some top tips to help you keep on top of your credit rating:
- check your credit score for free and get a copy of your report using Equifax, Experian, TransUnion or Equifax. You can get your Equifax report for free using CredAbility.
- check your credit report regularly to make sure all your information is up to date and correct
- make all your repayments on time every month
- consider setting up a direct debit to make sure you never miss a payment
- never borrow more than you can afford to pay back
- try using a credit-boosting service.
To find out the optimal time to renew your car insurance and save money, read on here.
Disclaimer: All information and links are correct at the time of publishing.
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