Car Insurance And Your Credit Score: 3 Things You Should Know
Anytime you request a quote for auto insurance, the insurance company may check your credit before giving you the quote. Because of this, getting a quote for coverage may affect your credit score, and there are several other things to understand about the correlation between car insurance and your credit score.
You should expect a hard inquiry
A hard inquiry is a term used in reference to credit scores and credit reports, and it refers to the action a company takes to check a person's credit report for the intention of offering the person a line of credit or a loan. Insurance companies also perform hard inquiries, though, and they do this to find out a person's credit score, as credit affects insurance rates. When they run a hard inquiry, they can learn more about your creditworthiness, and you should realize that a hard inquiry can temporarily cause your score to drop. This reduction in score will not be a huge impact, and it can only affect your score for up to two years, as hard inquiries drop off a report after two years.
Your credit could affect your rates
A lot of insurance companies factor in a person's credit score when calculating rates. A person with a high credit score may have a lower risk of filing a claim, while a person with a lower credit score may have a higher risk of filing a claim. Because of this, you may pay more for your insurance if your score is not as high as it should be.
Your credit could decrease more if you pay with a credit card
The other thing to understand about your credit and your auto insurance rates is that your credit score could drop if you use your credit card to pay your premiums. If paying the premium maxes out your credit card, it will cause your credit ratio to increase, and this will cause your credit score to drop, so you should use caution when paying bills with credit cards.
There are so many other factors that will affect your car insurance rates a lot more than your credit score, but it is still important to understand that your credit can play a role in the costs of your insurance. It is also important to understand that you may end up with a hard inquiry on your report after asking for an insurance quote.