Written By: Ryan Stueber
I was recently asked this question by one of our PNW Insurance Group clients, and thought I would share the answer here for our readers.
There are a lot of things that go into homeowners insurance and car insurance rates, one of them being credit. I’ve heard a lot of complaints from people who don’t like the fact that insurance companies use credit in their underwriting. You may be surprised to know that around 92% of all insurers actually consider credit when calculating car insurance premiums.
Some people have absolutely no idea that it’s used in the rate at all. 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.
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 as a result of an insurance company looking at it. And when I say “pull”, 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).
What is credit-based insurance?
Most insurance companies use credit-based insurance scores as well as your driving history, claims history and many other factors to help determine your insurance rates. Essentially, the better your insurance scores are, the lower your auto insurance rate will typically be. Keep in mind that this score is only one of many factors used to calculate your insurance premium.
*Please note: As of March, 2021, there have been some dramatic insurance and credit score changes due to a new ruling in Washington state.*
When does credit play a role in insurance rates?
Insurance companies don’t continuously check or monitor your credit. Usually, they only check it when you first get a quote and/or sign up with them in the very beginning.
This means that if your credit score increases (or decreases) your insurance company does not automatically know about it.
So, to my customers question of whether or not his increased credit score will lower his rates, the answer is not automatically.
What has to be done on our side as the agent is contact the carrier the insurance and ask them to do what’s commonly referred to as a “re-score”. This is when the insurance company can re-run the person’s credit (soft inquiry) to see if there is any positive bearing on the rate.
This isn’t something that the insurance company is going to let the agency do every single 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 that was the case.
How can I improve my credit based insurance score?
It’s important to reiterate that your credit score is just one of many other factors that may impact your insurance rates. Here are just a few factors to keep in mind when thinking about how to improve your score:
- Payment history
- Length of credit history
- Types of credit
- Credit utilization
If you’ve done any research on how to improve your credit score by itself, then you’re probably already familiar with this list. At the end of the day, making sure to practice healthy credit habits is something you’ll want to do no matter what.