I was recently asked this question by one of my clients, and thought I would share the answer here for my readers.
As I’ve mentioned in earlier articles, there are a lot of things that go into homeowners and auto 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. 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. Complaining isn’t going to change it. 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. 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).
When does credit play a role in insurance rates?
It’s important to understand that insurance companies don’t continuously check 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 I’m going to have to do as his agent is contact the carrier his insurance is with, 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 bearing on the rate.
Insurance companies don’t generally like to do this, so it’s not something that you can do all the time.