The past 10 years, our insurance score has become more important to our insurance rates. Whether people see it as fair or not, it is a reality that our credit score does impact multiple areas of our lives.
There are a lot of factors that are considered when determining rating our premiums for homeowners and auto insurance rates, one of them being credit.
Some people have absolutely no idea that it’s used in the rate at all.
What Is An Insurance Score?
An insurance score is the proprietary “Score” that each carrier puts together to determine the financial health of a client. The score takes into consideration if someone pays their bills on time, how long they have had insurance and even what their limits of coverage are.
How Long Have Carriers Used An Insurance Scoring Approach?
Insurance companies adopted credit scoring decades ago, and that’s not likely to change anytime soon. Surprisingly enough, there is a lot of research that shows a correlation between the amount of time spent servicing a policy, and the severity and frequency of claims, mid policy cancellations and more all costing the insurance company more in manpower, materials, and claims, thus costing them more money on their end.
Does It Hurt My Credit When An Insurance Company Pulls My Credit Score?
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 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 What Does All This Mean?
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.
If you’d 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.