I was recently asked this question by one of our Safeguard Insurance Agency clients, and thought I would share the answer here for our readers.
There are a lot of things that go into homeowners and auto insurance rates, one of them being credit. Iโve heard a lot of complaints from people who donโt like the fact that insurance companies use credit in their underwriting.
Some people have absolutely no idea that itโs used in the rate at all.
At the end of the day, thereโs not much we can do about it though. Insurance companies have been using credit in their rates for decades, and thatโs not likely to change.
By the way, insurance companies donโt 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 โpullโ what I mean is that the insurance company is doing whatโs 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?
Itโs important to understand that insurance companies donโt 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 whatโs commonly referred to as a โre-scoreโ. This is when the insurance company can re-run the personโs credit (soft inquiry) to see if there is any positive bearing on the rate.
This isnโt something that the insurance company is going to let the agency do every single year, so itโs 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.
If youโd like to get a better handle on your credit rating, it could be helpful to setup credit monitoring. We hope this was helpful! As always, leave us comment below if you have any questions.
