It is common practice in the insurance industry to pull your credit score any time you shop for insurance. The information gives the underwriters an idea of your potential risk as a client. You may be concerned that shopping around for insurance and requesting quotes from several underwriters could have a negative impact on your credit score, because the search initiates inquiries that go into your credit history. Rest easy. This type of soft inquiry does not lower your credit score.
Credit Score Basics
Your financial credit score demonstrates the likelihood you will make on-time payments on installment loans such as a mortgage or car loan, or on revolving debt from credit cards and credit lines. It is typically used by lenders to determine whether to extend credit to you. Your credit score is affected by -- among other variables -- inquiries they make when you apply for credit. These hard inquiries negatively affect your score by a small amount. Soft inquiries such as those that result in preapproved cards offered by some companies do not affect your score.
Insurance companies have a scoring system that is different from financial credit scores. The insurance score is based on determining whether you, the potential client, are likely to be involved in a future insurance claim. However, the insurance score uses some data elements from your credit report, including positive and negative information. Scoring models differ from one company to another and use different combinations of credit variables to produce the optimal prediction.
Data Accessed by Insurance
To make its decision in taking you on as a client or to give you a quote, the insurance company pulls some credit report information. Accessed data includes your name, address, Social Security number and date of birth. In addition, your credit history -- outstanding debt, available credit and payment patterns, public records, if any, and credit inquiries during the past two years are of interest to the insurance company.
Impact on Scores
When you shop for insurance, the credit checks requested by insurance constitute soft inquiries. The soft inquiries are added to your credit report but have no effect on your credit score. Normally, these inquiries are visible only to you and the credit-reporting agency, not to lending institutions or other third parties.
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