After doing a car insurance quote comparison test, I wanted to clear up any confusion regarding applying for car insurance and your credit history. Here’s why you should be able to get quotes from as many insurers as you like without worrying about your credit score.
Will auto insurance companies check my credit?
Probably. According to recent surveys, over 90% of insurance companies (including the top 5 auto insurers) use credit information in their underwriting process. It’s not the only thing, just one of the many things that gets considered like your driving record or accident history. There is a historical correlation between certain behaviors like high credit limit utilization and filing an insurance claim. Insurance scores weigh various factors differently than in standard FICO scores.
However, certain states including California, Hawaii, and Massachusetts do not allow the use of credit information in the underwriting or rating of car insurance. Texas had a similar bill proposed in 2013, but I don’t think it was passed.
When will they check my credit?
Either during the premium quote process, or when you actually pick one and apply for insurance. (Some will also check your credit upon premium renewal.) Out of the four insurance companies that I got quotes from, only Progressive asked for a Social Security number and it was optional (I declined to provide it). However, all of them get permission from you to run a credit check in the fine print when you apply for a quote.
For some companies, the initial quote provided assumes you have acceptable credit, and during the application process they check your credit and may adjust the quote based on any negative information. For example, your report may show a high utilization percentage of available credit.
Will it affect my credit score? Hard vs. soft pulls
No. At least, it shouldn’t. When someone checks your credit report, the inquiries are broken down into two types: soft vs. hard pulls. Soft pulls do not affect your credit and are not visible to other people. For example, when you check your own credit score or when a credit card company sends you pre-approval letter. Hard pulls are supposed to be a result of you trying to obtain a loan or credit, and stay on your credit report for 2 years (although their effect decreases with time).
When an insurance company checks your credit, you’re not trying to borrow any money so it should be classified as a “soft” pull. Based on combing various credit and insurance forums, I can confirm that the vast majority people report a soft pull as a result of buying auto insurance. There are a few reports that insurance companies performed a “hard” pull, but many times those people reveal subsequently that they don’t really understand soft vs. hard. Just because it is shown on your credit report doesn’t mean it’s a hard pull! There is a section that lists soft pulls that only you can see. Just because you see a hard pull, that doesn’t mean it was necessarily the insurance company. Many insurers like GMAC Insurance and Liberty Mutual explicitly state on their websites that insurance credit checks do not affect your credit score (i.e. they are soft).
Now, I should say that it is technically possible that an insurance company erroneously miscodes their request and it ends up as a “hard” pull. In such a case, you can try and dispute if you wish.
How do I track hard pulls?
You can track hard inquiries on your TransUnion credit report for free at CreditKarma.com (as well as get a free credit score). They even offer an insurance-specific score which is intended to mirror the factors that insurers care about. Based on online reports, GEICO does a soft pull on your TransUnion.
You can track hard inquiries on your Experian credit report for free at CreditSesame.com (as well as get a free credit score). State Farm, USAA, and others have been reported to check Experian. For both Credit Karma and Credit Sesame, you can even view the name of the company that did the pull as well as the date. I am not aware of any such option for Equifax. My personal experience is no hard pulls after my car insurance quote spree.