Can insurance companies use your credit score to quote an insurance rate to you?

Most insurance companies that use credit information will include it as a factor in determining their rate. For example, a person with a relatively high credit score may pay a lower premium than someone with a relatively low credit score. It's true that insurance companies check your credit score when they give you a quote. However, what they're doing is called “soft searching,” a type of query that won't affect your credit rating.

You'll be able to see these inquiries in your personal credit reports, but that's about it. These inquiries are not visible to lenders and have no effect on your credit rating. Insurance quotes don't affect credit ratings. Although insurance companies check your credit during the quote process, they use a type of inquiry called a “soft request” that isn't presented to lenders.

You can receive as many inquiries as you want without negative consequences for your credit rating. This is because the insurance company isn't looking at your real score; it's just using information from your credit report. Bankrate can help you understand why your credit history may affect your car insurance rates and what steps you can take to improve your credit situation and potentially lower your premium. That's why the average cost of car insurance varies depending on the state you live in and your credit level.

California, Hawaii, Massachusetts and Michigan prohibit or restrict the use of credit as a qualifying factor for auto insurance policies. Most auto insurance companies will look at your credit report and use your credit rating and credit history as a single factor when setting premiums. Once you apply for insurance coverage, you authorize the insurer to obtain your credit and other information it needs to calculate your premium. However, your credit score isn't the only thing that affects your insurance premium, depending on the type of insurance you're looking for, but your driving record, geography, property value and claim history can affect the amount you'll pay per month.

Depending on the state and the insurer, some people can pay an average of 67 percent more in premiums for their car insurance than people with excellent credit. While credit ratings try to predict the likelihood that a consumer will be 90 days late on a payment over the next 24 months, credit-based insurance ratings try to predict the likelihood that a consumer will file insurance claims that will cost the company more money than it collects in premiums. Insurance companies use what's called a credit-based insurance score, which evaluates certain elements of a consumer's credit history to determine how likely they are to have an insurance loss. California, Hawaii and Massachusetts have laws that prevent insurers from using credit history to set insurance rates.

Many auto insurance companies use a credit-based auto insurance score to decide if they take out you as a policyholder, as well as the premium you'll pay if they do. These discounts can include a discount for driving if you haven't had an accident recently, or discounts for multiple vehicles and policies if you insure multiple vehicles or have different types of insurance from the same company. Auto insurance companies in most states use the applicant's credit score and credit history to calculate their premium. Car insurance rates are determined based on a number of personal factors, and in most states, how credit is handled is one of them.

Auto insurance companies can, and often do, consider your credit history or use a credit-based insurance score before offering you coverage. Statistically, drivers with lower credit scores are more likely to file a claim, since actuarial studies show that how a person manages their financial affairs is a good indicator of filing an insurance claim, according to the Insurance Information Institute (Triple-I).