Does changing my insurance company affect my credit score?
Under normal circumstances, changing insurance companies will not affect your credit score.
Insurance is a competitive market, one of the reasons people and businesses change insurance companies all the time, in search of better coverage, better prices, or better service.
When getting an insurance quote, insurance companies might check your credit history with your consent and use your credit score as one of the ways to determine your insurance rates. By having a higher credit score, you might pay a lower premium compared to someone with a lower credit score.
There are two cases when changing insurance companies would affect your score and they are both based on why you are leaving your current insurer. The first is changing insurers because your previous policy has been cancelled for non-payment. The second is doing so because you have outstanding debts owed to the insurance company. In either of these situations, there may be derogatory marks placed on your credit history, which will negatively affect your credit score.
At this point, you might be wondering, what is even a credit score? As defined by Investopedia, a credit score is a number between 300–850 that depicts a consumer's creditworthiness. The higher the score, the safer a borrower looks to potential lenders – more likely to pay on time, less likely to default on a payment based on their borrowing and payment history.
A credit score is based on credit history which includes factors like: number of open accounts, total levels of debt and repayment history. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
There are two types of credit history checks:
Hard Checks or Hard Pull – this type of credit check is attached to a particular credit application, for example, a mortgage loan application. Because it is attached to an application and shows you are actively looking for credit, it can affect your credit score. The more hard checks conducted, the more it significantly affects your credit score.
Soft Checks or Soft Pull – this type of check is done as part of a background check, and when you are not actively looking for credit. Because it is not attached to a particular credit application, it does not affect your credit score.
What most insurance companies do when quoting you, is a soft pull of your credit history, which generally will not affect your credit score. Hard pulls affect credit scores and are unlikely to happen in an insurance quoting or you changing company perspective.
More Q&As from our experts
- Does my credit rating have any effect on my auto insurance premiums?
- How is mortgage life insurance different than regular life insurance?
- Do hotels have insurance for their customers’ items?
Stay informed with Insuranceopedia!
The world of insurance can be complicated. Subscribe to the Insuranceopedia newsletter and stay in the know! Access expert content, industry term definitions and answers to your questions from knowledgeable insurance insiders. Arm yourself with what you need to know to keep your assets and your family safe.