Does a car insurance quote affect my credit?

You may have heard that car insurance companies will review your credit score before providing an insurance quote. It is true that car insurers will pull your credit when providing a quote, however, will this “pull” lower your credit score? The good news is that car insurance quotes will NOT impact your credit and you should feel empowered to solicit as many quotes as you need. Read on to learn more about why insurance companies pull your credit and why your credit score is safe!

Does a car insurance quote affect my credit?

No, when car insurance companies pull your credit they perform what’s known as a “soft pull”. This type of credit pull is not visible to lenders, doesn’t go on your credit report, and doesn’t impact your credit in any way. This is true whether your credit is pulled by just one insurance company or multiple.

A soft pull is very different than a “hard pull”, which happens when a financial institution reviews your credit to decide whether to give you a new credit card or loan. Although a hard pull won’t substantially hurt your credit, it may lower your credit score by a few points. This is because lenders will consider you a higher risk if you are applying for a substantial amount of different credit cards or loans at once. On the other hand, lenders don’t care if you are shopping for insurance. Although insurers do pull and review your credit, getting an insurance quote does not make you a more risky borrower!

Unfortunately, the myth that car insurance quotes impact your credit has scared many drivers away from getting quotes and properly price shopping. Remember, there are no negative impacts to your credit in getting multiple quotes, so if you are considering switching car insurance companies, be sure to get multiple quotes!

Why do car insurance companies need my credit score?

Car insurance companies pull your credit score because it is highly predictive of how likely you are to get into an accident or make an insurance claim. Car insurance companies have found that drivers with a high credit score are generally more responsible. Because high credit score drivers tend to be safer and get into fewer accidents, they tend to pay less for car insurance.

Of course, your credit score is just one component of how much car insurance companies charge you, but it is certainly one of the most important. It is in your best interest to keep your credit score high!

Do all car insurance companies pull my credit score?

No, not all car insurance companies will pull your credit. In fact, in some states, it is illegal for a car insurance company to factor your credit score into car insurance pricing decisions. Although credit scores are predictive of driver behavior, they can also unfairly penalize certain drivers.

For example, drivers who have had to declare bankruptcy as a result of job loss, medical emergencies, or divorce – but are otherwise safe drivers – could pay multiple times more for insurance than other drivers. Furthermore, one source also found that how credit scores are calculated also unfairly marginalize those with lower income and minorities.

States Where Credit-Based Insurance Pricing is Illegal

While many states have restrictions on how credit is used to price and approve insurance, there are several states that outlaw the use of credit scores in general. As of this article’s publication, the states where credit-based insurance pricing is illegal include:

  • California
  • Hawaii
  • Massachusetts
  • Michigan

While other states do have limitations on using credit scores, you should expect that in all other states insurers will leverage your credit score in some way. The legality of credit-based insurance pricing is a hotly debated and political topic. Depending on the political climate and which party is in office, more states may consider banning this practice.

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