Yesterday we wrote about how to compare auto insurance rates online. One question that has come up is whether getting an auto insurance quote will lower your credit score. Car insurance companies today routinely pull your credit report and use your credit score and history as one factor in setting premiums. As we’ve discussed in the past, your credit history affects your finances in many ways, and car insurance premiums are a good example of this. The higher your score, the lower your premiums.
Here’s how Progressive explains the use of credit scores in its underwriting process:
Credit has been proven to be a very powerful and independent predictor of future accidents or insurance claims. The use of credit history provides an additional predictive factor — one not offered by other factors such as driving record, vehicle type, age, etc. In fact, Progressive data shows that consumers with the worst insurance scores are twice as likely to have an accident or insurance claim as those with the best scores.
But getting an auto insurance quote generally does not affect your score. Why? It’s because insurance companies do what’s 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 which would be soft pulls. And if you check your own credit score, that’s considered a soft pull, too. The key is that a soft pull does not affect your credit score in any way.
- 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 will affect your credit score.
So the question is whether a car insurance carrier’s review of your credit history results in a hard or soft inquiry. In reviewing the websites of several major auto insurance companies, they report that their inquiry is a soft pull that does not affect your credit score. Although the inquiry is not involuntary (it results when you seek an auto insurance quote), it’s not because you are seeking credit. As a result, it makes sense that the inquiry would not lower your score.
Here’s what other major insurers disclosure about pulling credit reports:
Geico explicitly states that the do pull credit reports where permitted by law. They confirm, however, that it does not affect an applicant’s credit score. They also describe your rights if your credit adversely affects your insurance premiums:
If GEICO has taken an adverse action against you (such as offering you a higher rate) as the result of information contained in your credit report, you may obtain a free copy of your credit report. If you believe there are errors in the report, you should notify the consumer reporting agency immediately.
State Farm: “State Farm looks at the driving record of each driver. A person’s previous driving record is one predictor of future loss experience. Then, we weigh a person’s driving record in combination with a variety of other information, including certain elements of credit history, in our overall review of an application and renewal of car insurance.”
Allstate: “In addition, please remember that although certain types of inquiries in your credit report can adversely impact your insurance score, not every inquiry will have this effect. For instance, in determining your insurance score, we do not consider . . . inquiries Allstate or any other insurer initiates to review your credit history for insurance purposes.”
If you spend any time on forums about credit, however, you’ll hear about individuals who say a car insurance company performed a hard pull on their credit. While one can’t rule this out, it seems unlikely to me. What is more likely is that the individual sees the soft pull on their credit and assumes that it’s a hard inquiry because it’s visible to them on their credit report. Nevertheless, if you believe that an insurance quote resulted in a hard inquiry, leave a comment below sharing your experience with us.