Does Shopping for Car Insurance Affect Your Credit Score?
Many people wonder if shopping for car insurance could impact their credit score. This concern is understandable, especially since car insurance companies often check credit reports as part of the application process. However, it is important to understand the nuances and impact of these inquiries on your credit score.
Understanding Credit Inquiries and Their Impact
Credit inquiries provide insight into how often your credit report is accessed and how many times you've looked to borrow money. These inquiries can be classified as either 'hard' or 'soft'. Hard inquiries occur when a lender checks your credit report in response to a loan application. They can temporarily lower your credit score by a few points, especially if they are numerous within a short period.
In contrast, soft inquiries are less impactful and do not affect your credit score. These occur when companies check your credit for non-credit-related reasons, such as seeking quotes, pre-approval offers, or verification of employment.
Soft Pulls and the Car Insurance Application Process
When you shop for car insurance quotes, your credit score may be subject to a soft pull. A soft pull is a type of inquiry where a company checks your credit report for non-credit-related reasons, such as requesting a quote. These do not impact your credit score and should not be reflected in your long-form credit report.
While some insurance companies do perform hard pulls on credit during the application process, many rely on soft inquiries to assess your creditworthiness. Since soft pulls do not impact your credit score, seeking multiple quotes for car insurance can be a good strategy without worrying about a negative impact on your FICO score.
What Changes Can Occur from Hard Inquiries?
If you make a commitment to purchase car insurance and the insurance company performs a hard pull, your credit score may see a moderate impact. This is because hard inquiries are more significant and can affect your credit score for several months. However, if you have a very high credit score, the impact may be minimal. In any case, it's advisable to space out inquiries if you are concerned about maintaining your credit score.
It's worth noting that insurance companies are more interested in your ability to pay the premiums, rather than your current credit score. They want to ensure that you have a stable income and can afford the monthly payments. Therefore, the importance of your credit score in the overall evaluation process is less critical than your ability to manage payments.
Conclusion
In conclusion, shopping for car insurance generally does not affect your credit score as it will likely result in a soft pull. If multiple hard inquiries are conducted, there may be a temporary impact, but it is usually not significant for individuals with a high credit score. By understanding the types of inquiries and their impact, you can shop for car insurance with confidence without compromising your financial well-being.