Will my Credit Score affect my Insurance Rates?

What does my credit score and insurance have to do with each other? I was recently asked this question by one of our  clients, and thought I would share my answer here.

There are a lot of things that go into homeowners and auto insurance rates, one of them is credit history, which is found in your credit report. What are the other major rating factors for home insurance? Find out here.

I’ve heard a lot of complaints from people who don’t like the fact that insurance companies use credit scoring in their underwriting.

Some people have no idea that their credit is used for their insurance premium.

At the end of the day, there’s not much we can do about it though. Insurance companies have been using credit in their rates for decades, and that’s not likely to change.

Insurance companies use credit history information, not the credit score itself. Credit history is a track record of “behavior”. Just like a motor vehicle report is a track record of driving behavior, this consumer behavior can be a predictor of future behavior.

Credit History is not a Credit Score

By the way, insurance companies don’t pull your credit like a mortgage company or credit card company does. There is no negative impact on your credit score as a result of an insurance company looking at it.

When I say “pull your credit,” what I mean is that the insurance company is doing what’s called a soft inquiry, which is not the same thing as having your credit pulled (hard inquiry) by a mortgage or loan company.

Q:  When does credit play a role in insurance rates? 

A:  Always.

It’s important to understand that insurance companies don’t continuously check or monitor your credit.

Usually, the insurance company will check your when you first get a quote and/or sign up with the insurance company in the very beginning. Then periodically, about every three years, the company will order a new score.

This means that if your credit score increases (or decreases) your insurance company does not automatically know about it.

So, to my customer’s question of whether or not his improved credit score will lower his rates, the answer is, YES.

To update an insurance score the agent will contact the insurance carrier and request them to do what’s commonly referred to as a “re-score”. At the request of the customer, the insurance company will re-run the person’s credit (soft inquiry) to see if there is any positive change on the rate.

This is NOT something the insurance company is going to let the agency do every year, so it’s not worth even asking unless there has been a significant change in your credit score, and only you, as the customer, would know if your credit score has improved.

If you’d like to get a better handle on your credit rating, it would be in your best interest to setup a credit monitoring system.

With the recent rash of breaches of private information by Experion, Facebook, and others, the question of whether your private information is vulnerable should be obvious.

I hope this was helpful! As always, leave a comment below if you have any questions.

The information contained in this page is provided for general informational purposes only. The information is not meant as professional or expert advice, and any reliance you place on such information is therefore strictly at your own risk