Does An Auto Insurance Quote Affect Your Credit Score?

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Discussing Insurance Coverage Hello, my name is Linda Suzanne. Welcome to my website about insurance. When I was first living on my own, I went without many different forms of insurance due to budget constraints. Unfortunately, luck was not on my side, so that decision did not serve me well. After suffering several major financial losses, I looked into affordable insurance options that would protect me from further complications. On this site, I want to help everyone understand how to acquire the insurance coverage that works best within their budget. Thank you for coming to visit my site. I invite you to come back often to learn more.

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Nobody wants to pay for an insurance policy that costs too much but covers too little. Hence, you may be considering asking for auto insurance quotes from different insurance companies to ensure you're getting the best possible coverage.  

But you have probably heard that insurance companies use a person's credit score to calculate premiums. And now you could be afraid that getting the quote will hurt your credit. Well, the good news is, it won't. Read on to learn more.

The Truth about Insurance Quotes and Your Credit Score

It's true that most insurance companies will check your credit score before sending you a quote. However, the type of inquiry they use is called a soft pull and won't show up to lenders. You can get as many auto insurance quotes as you want, and your credit score won't be affected in any way. 

Besides, insurance companies aren't looking at your actual credit score. What they're interested in is your credit report information in order to create a credit-based insurance score. Instead of measuring how creditworthy you are, a credit-based insurance score measures how risky you are from a car insurance perspective, based on your creditworthiness. 

Why Do Insurance Companies Check the Credit Score Anyway?

Insurers check your credit score to determine the risk they're taking by insuring you. According to an independent study by the Federal Trade Commission, credit-based insurance scores effectively predict risk in automobile policies. This shows that people with lower credit scores are more likely to file claims or have costly claims. 

Contrastingly, people with higher credit scores are less likely to get involved in accidents, so they will file fewer claims. Therefore, if your credit score is low, you're likely to pay a higher premium than someone with a high credit score.   

Do All States Check Credit Reports When Calculating Insurance Premiums?

A few states don't check your credit report when calculating your insurance premiums. California, Massachusetts, and Hawaii have enacted laws to prevent insurance companies from using credit scores to set insurance rates. These states base their rates on other factors, like your location, driving history, and type of car.

In all the other states, an auto insurer will use your credit history in some capacity. The effect of your score on the premiums may vary from one insurer to another and from one state to another. 

How Can You Increase Your Credit Score Before Applying for Auto Insurance?

You may be afraid that your poor credit history will result in an expensive auto insurance policy. Luckily, you can do something about it. The actions that improve your credit score will also improve your credit-based insurance score. 

Start by paying down your revolving credit balances. Then, maintain a habit of paying all your bills on time and in full. Over time, your credit score will grow, allowing you to pay less on your car insurance.

Contact an insurance company near you, such as LA Insurance, for more information. 

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