A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 19, 2021

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Here's what you need to know...

  • Most auto insurance companies will check your credit with a soft credit inquiry before providing you with a quote. This will be utilized to help determine your premium.
  • A soft credit inquiry does not affect your credit score.
  • Hard credit pulls can affect your credit score, but must be authorized by you and are not done by auto insurance companies.
  • There are many steps you can take to improve your credit-based insurance score or to simply reduce your auto insurance premiums.

Your credit score can have a big impact on your financial life. It can affect rates you pay for loans you have and whether or not you can qualify for additional credit and loans in the future. However, what exactly can affect your credit score can be a mystery; there are many factors across the board that can be used and it can get confusing. Your cost of insurance can also have a large impact on your financial well-being.

Not only what type of insurance you have, but also if you’re making your monthly payments on time. Paying bills when they’re due might seem like it’s common knowledge, but people tend to think the worst that can happen is a late fee. But your credit score isn’t going to like late payments, either.

If you need to lower your insurance premiums on your vehicle for whatever reason, consider using an online auto insurance price comparison tool. This will help ensure you are paying the best rates possible for your vehicle and situation.

Start comparing car insurance rates now by using our FREE tool above! Read on to find out how your credit score and your car insurance can affect each other, and ways to save money on the average cost of auto insurance premiums.

What are soft credit pulls vs. hard credit pulls?

While it can be unnerving to know that your credit history and score is looked at when calculating the premium amount you will pay, in most cases, this look into your credit report will not damage your credit. There are two types of inquiries into your credit: a hard pull and a soft pull.

When you apply for a credit card, loan, or some other type of financing, a hard pull is performed. This means your entire credit report is viewed and the pull is noted on the report for others to see. Hard pulls, also known as hard inquiries, need to be authorized by you. They will remain on your credit report for up to two years and can potentially lower your credit score.

The good news is that many times the hard pull will stop affecting your credit score before it even falls off of being seen on your report for those two years.

However, a soft pull does not have any effect on your credit score. A soft pull is generally only visible to you and does not affect your credit rating or score. When deciding on an auto insurance quote for a potential customer, auto insurance companies only do soft pulls. Soft pulls are also done in relation to employee background checks, pre-approved credit card offers, and when you check your own credit score. A soft inquiry can happen with you giving permission. At times, they can be recorded on your credit report. It is important to remember that soft pulls, such as those done by auto insurance companies, will not change your credit score.

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How does your credit affect your car insurance rates?

Drivers shopping for auto insurance should be aware that, in most states, it is legal for car insurance companies to use your credit score and credit history to help with the determination of your auto insurance premiums. To the consumer, this practice can be alarming and can even feel like an unnecessary invasion of privacy. However, it makes a lot of sense for car insurance companies to use a driver’s credit score to help determine their rate.

FICO is one of the major companies that helps car insurance companies create credit based insurance scores and reports that approximately 95% of all auto insurance companies and 85% of homeowners insurance companies will turn to credit-based insurance scores when they are legally allowed to in order to determine their risk when entering a driver or homeowner.

What information is used from a credit report to help determine premium prices?

When you obtain a quote from an auto insurance company, a soft pull of your credit report is done. Various items and pieces of information, such as your payment history, if you have had any accounts in collections, any histories of bankruptcies, new credit inquiries, how long you have had credit, and your payment history are taken into consideration when determining the price you will pay for your auto insurance premium. There are additional factors like lines of credit, which means any credit cards you have even if you aren’t using them, and student loans will also appear on a credit report.

Keep in mind that your payment history will account for about 40% of your credit-based insurance score. This means that if you have late payments on any of your bills, this will affect your score. A vast majority of companies offer auto pay just so that late payments and fees don’t happen, but sometimes that’s not a workable option so it’s best to stay mindful of your bills. You can find out here if your current state legally allowed the use of credit ratings to be used in determining auto insurance premiums.

Can credit-based insurance score be improved?

Your credit-based insurance score is directly related to the health of your credit report. Since you can take steps increase your credit score and improve your credit report over time, you can also take steps that will increase your credit. It is important to be aware that this does not take place overnight and does take some hard working dedication. The following steps can help improve your credit-based insurance score:

  • Keeping your balances low on existing credit cards
  • Not applying for new forms of credit or allowing hard pulls to your credit report
  • Paying your balances on time on existing accounts
  • Paying off any outstanding debts
  • Getting caught up on any accounts that are behind or late
  • Staying current on all accounts

If you stick with any or all of these game plans, over a period of time you’ll see that your hard work has a positive impact, and that a poor score will hike into the green before long.

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Are there faster ways to get a better premium?

While increasing your credit score can go a long way in reducing the premiums you pay for your auto insurance, most people would like to reduce their rates now. In the event that you’re currently unhappy with or unable to pay your auto insurance premium and want to reduce your premiums now instead of waiting for your credit-based insurance score to improve, try comparing auto insurance rates online with a price comparison tool. You can also do the following:

  • Ask about multi-policy discounts
  • Ask about military, senior, good driver, student, or multi-vehicle discounts
  • Find out if paying your premium once or twice per year will reduce your rates overall
  • Increase your deductibles
  • Consider lowering coverage on older cars
  • Ask abut low mileage discounts
  • Ask about group insurance rates to see if you qualify
  • Inquire about any other discounts you may qualify for but are not receiving

Car insurance does not directly impact your insurance score, as only a soft pull is done when you apply for a quote from most insurance companies. However, your credit score can impact how expensive your premiums are, and if you’re unable to pay your bills on time, that can lead to some negative impacts. Not paying on time can lead to bad credit, which in turn will increase how much you pay for an auto policy, leading to a circle of misery. Make those payments on time!

Improving your credit score, comparing premiums while shopping around, and asking about various other discounts can all be steps to improving the amount of money you pay to your auto insurance company. That way, when someone runs a credit check, all they’ll see is your hard work and dedication via excellent credit.

Enter your zip code in our FREE tool below to compare car insurance rates now!