Will a credit inquiry for insurance hurt my credit score?
Will your credit score get hurt if you shop for insurance?
The simple answer to this question is NO.
An insurance inquiry on your credit score will not hurt your credit score.
When you pull your credit report from the major reporting agencies, you will see the names of the insurance companies who have placed an inquiry to your credit report. These are visible to you. But do NOT show for any other entity that pulls your report. So insurance company A will not see that you also got a quote from insurance company B.
Each of the three credit reporting agencies is required to offer you a free credit report once per year. You can visit www.annualcreditreport.com to get your reports. You can pull them at the same time, or at different intervals.
According to an Experian release
“An inquiry will be added to your credit report each time an insurance company accesses your credit report. But, the inquiries will have no effect on credit scores or lending decisions. … They are not provided to lenders, so they are not considered in credit score calculations or lending decisions”
Almost every major insurance company does use your credit score for risk underwriting purposes.
The Fair Credit Reporting Act states that the credit agencies may furnish credit reports to any insurance company that is using the reports for underwriting an insurance policy.
The insurance companies have the data to support their ratings. Insurance companies have to get their credit score ratings approved by the each state’s department of insurance. To do this, they have to show that there is a correlation between credit and risk of loss. So their data shows that they have paid more out in claims to those with lower credit scores than those with higher credit scores.
Is a credit score a valid underwriting tool?
There has always been a lot of debate on the validity of using credit scoring for the purpose of insurance underwriting. There are very good arguments for and very good arguments against the use of credit scoring in insurance.
Whether you are for it or against it, the fact is that it does exist. And we all have to deal with the fact that our credit score my affect our cost of carious insurance policies. So it is yet another reason to monitor your credit score on a regular basis as stated above.
How is credit scoring used in insurance?
In Maryland, auto insurance companies are allowed to use your credit score as a rating factor for auto insurance policies. But credit is not allowed to be used as a criteria for homeowners insurance.
It other states, credit is used for both auto insurance and home insurance. And in a few states, credit cannot be used at all for insurance underwriting.
So check with your state and with your insurance company if you want to see how your credit is being used in the rating of your insurance policies.
Something to keep in mind is that the scores used by insurance companies are not the same as the scores used by your lenders. So do not be surprised if your FICO score shows 800 with your lender and your insurance score shows 725. And some companies use a tiering system, either numerically or alphabetically. In thse cases, you will see the tier and not the actual insurance score.
Another thing to keep in mind is that each insurance company develops their own scoring system based on the credit reports. So not only can your score vary from your FICO score, it can also vary from company to company.
Can you get a copy of the insurance credit inquiry?
You have the right to get a copy of every consumer report pulled by the insurance company. Part of your quote or policy package should include the name and number of the credit reporting agency used by the insurance company.
Contact Huff Insurance Today
Fill out the form on this page or call us at 410-647-1111. We can work with you to get the best insurance plan in place for your needs.