BY SOLO INSURANCE®

Yes, Car Insurance Companies Look at Credit Information

It may surprise you, but many car insurance companies consider credit information, where allowed and in some way, when calculating client rates. While it may sound concerning at first, understanding the why and what it means for you helps clear up confusion. Learn how insurance credit information is used.

What Is “Insurance Credit Information?”

Insurance credit information is often called an insurance score. You could say, it’s when insurance companies glance at your overall credit information. They don’t see your full credit report the way a lender does. Instead, they use a credit-based insurance score, which is calculated using information such as:

• Payment history
• Outstanding debt
• Length of credit history
• Frequency of new credit

Important note: your income, job title, race, ethnicity, or marital status are not part of this score.

Why Does Credit Matter for Car Insurance?

Over time, studies show a connection between credit behavior and auto insurance claims. In other words, insurance companies have found that people who manage their credit responsibly tend to file fewer or less costly claims. Because insurance is all about predicting risk, insurers use insurance credit information as one of many tools to help set fair pricing. However, credit is never the only factor. Other factors include your driving record, vehicle type, mileage, location, and coverage choices. It all adds up to determine individual rates.

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Does Checking Credit for Auto Insurance Hurt Your Score?

No, it’s not like getting free financing or a new credit card. When an auto insurance company reviews credit information it’s considered a soft inquiry. According to Credit Karma**: “Soft inquiries…typically occur when a person or company checks your credit as part of a background check.” Further, “Since soft inquiries aren’t connected to a specific application for new credit, they’re only visible to you when you view your credit reports.” Car insurance soft inquiries do not affect your credit score.

Do All States Allow Credit Use?

While most state allow the use of credit, a few states don’t allow car insurance companies to use credit information for determining rates. In addition, some states place limits on how it can be used. Regulations vary. Insurers, clearly, must follow state laws closely.

How Credit Can Affect Your Rate

Depending on your credit profile, the soft credit inquiry information may:

• Help lower your rate.
• Have little to no impact.
• Increase your premium slightly.

It makes sense. Worth noting: if your credit has improved a lot from when you started your current policy, consider asking the company to review it. Car insurance companies may also offer the opportunity for review in your renewal offer. Sometimes your better credit could mean better pricing.

Tips to Keep Credit from Hurting Your Insurance (and Overall Credit) Score

Even simple changes over time have an influence. Good practices include:

• Pay bills on time.
• Keep credit card balance low.
• Avoid opening unnecessary new accounts.
• Check your credit report regularly for errors.

The Bottom Line

As we’ve established, your insurance credit information is just one piece of the car insurance puzzle. Insurers use it to help them price policies more accurately. If you ever have questions about how credit affects your car insurance, you may request this from your auto insurance company. Also, a local independent agency like Solo Insurance® can explain your options and help shop for coverage that fits your situation. Unlike Solo Insurance®, not all agencies give you their best rate every time. So, make sure you ask.

We’re Here to Help

Have questions about your policy or rate? We’re always happy to help you understand your car insurance. At Solo Insurance®, we know insurance pricing can feel complicated and that you want the best rate. For over 30 years, we’ve helped people understand car insurance, shop for the coverage you want, and find a policy that fits your budget.

**Source:  https://www.creditkarma.com/credit/i/hard-credit-inquiries-and-soft-credit-inquiries

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