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Insurance Score: Are you running my credit?

By November 9, 2020March 5th, 2024Personal Insurance

While talking with people about insurance, it became evident to me that I am sometimes a super bore (I make no apologies). It also became evident that the term “insurance score” is confusing to many people.  While some of those I encounter know what insurance score means, most don’t know how it the insurance industry uses this information.  Let me see if I can try to explain.

Insurance Score vs. Credit Score

First, it is important to note that an insurance score and credit score are not interchangeable.  A credit score is used to predict someone’s ability to pay back debt when they are making a purchase or applying for a loan.  When a creditor requests a customer’s credit score, it’s called an “inquiry,” and a “hard pull” is noted on the customer’s credit report. Hard pulls are always initiated by the customer, with consent. Applying for an auto loan or a credit card would generate a hard pull. For each hard pull, three points are typically removed from the current score. Customers may also shop for good rates on a long-term loan like a mortgage, without affecting their credit. This is not always the case and is something better explained by financial professionals, which I am not! So, let’s get back to something I do know: insurance score. Insurance score is used to determine the likelihood that you will have a claim.  It’s a tool that insurance companies use to assess the risk of insuring each customer. It takes many things into consideration, like your past claim history, current debt levels, and payment history.

What factors affect my insurance score?

Now you know that the two scores are not interchangeable, and we’ve established that insurance agents are not running your credit. Your insurance score uses information from your credit report, but it gathers the information through what is called a “soft pull.” Soft pulls are involuntary (originating on the lender’s side), like a prequalification for a credit card or a loan. Soft pulls do not take points away from your credit score, so no worries when trying to make your next extravagant purchase.

When insurance companies are looking at your credit report, they are looking at income history, job history, pay history, and a high use of credit. An insurance company uses this information not as a tool to determine creditworthiness, but rather as a gauge to determine historical responsibility. When paired with claims history, and Department of Motor Vehicles motor vehicle report, the soft pull of your credit gives an insurance score that is calculated by databases such as the Comprehensive Loss Underwriting Exchange (CLUE). The analytics companies that process these scores use different scales to qualify risk, breaking it down to a good, better, and best rating.

So, to wrap this all up, insurance companies do not affect your credit score when using your information for underwriting.