Smart Auto Insurance Blog

It is becoming more widely known that many auto insurance companies use the credit score when calculating auto insurance quotes for those shopping around.  Whether you agree with it or not, insurers have found that credit history is a powerful predictor of what kind of driver you are.

According to the article “Does Getting An Auto Insurance Quote Hurt Your Credit Score” by DR on Doughroller.com, Progressive has data to show that consumers with the worst scores are often twice as likely to have an accident or file a claim compared to consumers with the best scores.  But a question that has been on the minds of many credit conscious consumers is how does it affect your credit score when you get auto insurance quotes from an insurer?

The answer is that it affects your score minimally.  Auto insurers are using what’s called “a soft pull” when they look at your file.  This is a way for people to look at your credit file without it affecting your score.  When you get pre-approved offers, are interviewing for jobs, or look at your own credit score these are all using “soft pulls”.  A “hard pull” is used when you are shopping for credit and it can negatively affect your score.  This is often known as a “voluntary pull” and it affects your score because seeking excessive credit is viewed as a risk factor.

There is some concern for those with Massachusetts auto insurance, that insurers may be able to use credit scores and profession when determining one’s auto insurance rates.  According to Jon Chesto’s article “Auto Insurance Agents Push for Ban on Using Socioeconomic Factors” on tauntongazette.com, many other states use credit scores as an auto insurance rate factor. 

The article also discusses the debate going on now between insurers and consumers.  President of the Massachusetts Association of Insurance Agents, Frank Mancini, is worried that the ban to use credit scores might not survive through the next commissioner.  Because of this, his organization testified at the State House in favor of a movement that would ban the use of these certain factors as state law.

The Massachusetts Association of Insurance Agents believe that insurance rates should only be based on driving record, location, and how long someone has been driving.  This is how it worked under Massachusetts previous, highly regulated auto insurance system.  Most states allow factors such as education, credit scores and occupation when insurers calculate an auto insurance quote, and many feel this is unfair to consumers.

According to the article “Credit Scoring Is Hurting Customers” found on sacbee.com from The Dallas Morning News, even if you are a responsible driver you may end up paying higher car insurance rates if you have blemishes on your credit file.  Whether or not this is fair is currently a huge debate.

The Dallas Morning News analyzed the insurance industry and found that people with poor credit paid 35% more on home and car insurance.  In certain cases, the insurance rates were more than double people with good credit, even if they had similar claim history.  This just goes to show how crucial it is to stay on top of your credit score.

Auto insurance companies believe that using credit as a risk factor helps to identify higher risk customers.  They cite The University of Texas research that shows drivers with lower credit ratings file more claims with their insurers.  They say that if it weren’t for the credit rating factor everyone would pay higher rates.  Credit scoring is no where near an exact science and can often hurt good customers. 

As you are shopping around for car insurance quotes try to identify if your credit may be affecting your premiums.