Unless you live in Massachusetts, Hawaii or California, where the practice has been banned. Here's what you need to know about how insurers use credit scoring to help develop auto insurance rates:.
Credit scores, or FICO scores, are based on information from your credit report and are used by lending institutions to determine how likely it is that you'll repay a loan on time.
Credit scores determine interest rates and loan qualifications. According to the Insurance Information Institute III , credit-based insurance scores don't factor in your job, income history, gender or any other personal information. The III says they use factors like your payment history and your total debt to assess your risk level. Car insurance companies use them to help determine the likelihood of an insurance claim in the future. How credit-based insurance scores work Most U.
Again, except in California, Hawaii and Massachusetts. According to the III, if you have a high credit-based insurance score, an excellent driving history, and zero claims on your record, you'll typically qualify for lower rates. This score is only one of many factors used to calculate your premium. If you have an excellent insurance score but a less-than-stellar driving history, you might be considered riskier to insure.
Why insurance companies use credit-based insurance scores Research shows that credit-based insurance scores can accurately predict accident potential. Statistical analysis shows that those with a low insurance score are more likely to file a claim. Those with higher credit scores tend to get into fewer accidents and cost insurance companies less than their lower-scoring counterparts.
The Federal Trade Commission undertook an independent study to understand the relationship between credit history and risk. Their study, like others before, found that credit-based insurance scores are effective predictors of risk. Hard inquiries When you apply for credit, inquiries by the lenders appear on your credit report. The CFPB says these credit checks, known as hard inquiries, affect your credit score since they are an indication of how often and how recently you applied for credit.
Experian notes that new hard inquiries may be factored into a creditor's decision, as they often mean you have recently added debt. Soft inquiries When your credit report is reviewed by you, by lenders reviewing existing accounts or by prospective lenders for pre-screening, it is noted as a soft inquiry. These will not affect your credit score, according to the CFPB.
You can obtain your credit-based insurance score report through LexisNexis and dispute any unwarranted entries. Insurance companies aren't permitted to make any adjustments to your score.
If you notice inaccurate information, you have the right to contest it and correct your credit history. The Fair Credit Reporting Act allows consumers to get a free copy of their credit reports every 12 months, according to the Federal Trade Commission. Ready for a Quote? ZIP Code is required. Invalid ZIP Code. ZIP Code. Related Articles. Build Your Own Homeowners Insurance Policy Learn how to build your own homeowners policy with optional coverages customized to your needs.
Car insurance companies in most states use an applicant's credit score and credit history when calculating their premium. As a result, many applicants might wonder, does an insurance quote affect credit score? The simple answer is no. Insurance quotes do not affect credit scores.
Even though insurance companies check your credit during the quote process, they use a type of inquiry called a soft pull that does not show up to lenders. You can get as many inquiries as you want without negative consequences to your credit score. This is because the insurance company is not looking at your actual score; it is just using your credit report information. Insurance companies check credit scores to gauge the risk they are taking to insure you, explains Progressive.
Studies show that people with lower credit scores have a history of filing more claims, which makes them higher risk. Higher credit scores correlate with a lower risk of claims. Drivers with lower credit scores usually pay higher premiums than those with high credit scores. According to WalletHub , an auto insurance score is a rating insurance companies use to predict if someone is likely to file a claim.
Insurers use information from credit reports to determine the risk. Insurance companies consider a few factors when determining auto insurance scores. These include:. Once you apply for insurance coverage, you authorize the insurer to get your credit and other information they need to calculate your premium.
In some cases, a company will ask for your authorization to view your credit information when putting together a quote so they can calculate a more accurate estimate.
In both cases, the query is a soft pull and won't affect your credit. A few states do not use credit scores to calculate premiums. California, Hawaii, and Massachusetts have laws preventing insurers from using credit history to set insurance rates.
Because most states do check credit, having bad or no credit can increase your rates.
0コメント