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Why Your Insurance Company Runs Your Credit Score

29 October 2012 One Comment

“You’re going to check my what?” you ask when you hear that your insurance provider is going to run a credit report. You’re not alone. Many consumers are surprised when they hear that a soft credit check is used to calculate their insurance score, which in turn is part of the process of setting premiums. But rest easy. Checking credit history is totally normal and is only one factor that contributes to your insurance score.

What is an insurance score?

Your insurance score is a number your carrier arrives at using a formula or algorithm that tries to quantify your risk as a customer. Different companies employ different equations to arrive at the number, so your insurance score might fluctuate according to carrier.

If you have a poor insurance score, you’ve been found to be statistically more likely to file a claim and cost the provider more money. If you fall into this category, you’ll be charged a higher premium to compensate for your risk as a client.

Your insurance score is based on several factors, such as your credit and claims history. For auto insurance premiums, your driving history also will play a role. It’s hard to believe that your financial habits reflect your likelihood of getting into an accident. However, research shows that credit scores are an accurate predictor of insurance risk. Since insurance scores are not based solely on credit reports, a top-notch credit history won’t necessarily guarantee you a good insurance score.

Will requesting an insurance quote hurt your credit score?

When you call an insurance agent and ask for a quote, the agent uses your Social Security number to complete a “soft pull.” This kind of credit check doesn’t change your credit score. A soft pull, sometimes referred to as an “involuntary inquiry,” takes place when creditors want to send you preapproved offers or when you check your own credit score. Hard pulls take place when you apply for credit. These checks can affect your credit score, but you probably don’t have to worry about them while you’re shopping for insurance quotes.

How to improve your credit and potentially lower your premium

Not filing claims and living a safe lifestyle are both good ways to lower your insurance rates. Another way to get an affordable premium is to improve your credit score. Try the following tips to raise your credit and insurance scores.

Save money

The most obvious of credit pointers is to spend wisely. Set a budget each month and stick to it. If you have anything left over, put it in your savings.


Minimize hard pulls

Before you let a company check your credit history, confirm that it will be a soft pull and not a hard pull. Don’t apply randomly for every card in sight.


Eliminate debt

Don’t let debt accumulate over time. Try to consolidate what you owe or pay off debts with high interest rates first. Your debt-to-income ratio is an important factor.


Pay bills on time

Paying your bills late will possibly result in extra fees, higher interest rates and a decrease in your credit score. Keep reminders to pay your bills on time.

Remember, your credit score isn’t the end all

Having a great credit score, as previously mentioned, doesn’t automatically qualify you for the best rates on home or auto insurance. You’ll need to avoid being in situations that could prompt claims.

For homeowners, that means being proactive: Trim tree branches that could fall on your house; pay attention to weather forecasts and be prepared for high winds; and take precautions to lessen damage from fires or break-ins. Automobile owners, meanwhile, can employ safe driving practices: Don’t drive too fast; don’t use a cellphone while driving; and pay attention at all times to your surroundings.

You’ll be healthier, and your insurance score will be as well.


One Comment »

  • Auto Insurance said:

    The one thing I've learned over the years that keeps my credit in good shape is simply paying my bills on time. Paying you bills on time and keeping the balances below the 50% limit.