When requesting an insurance quote, the insurance company usually checks your credit as part of its assessment process. This is because studies have shown a correlation between credit scores and the likelihood of filing insurance claims. Insurance companies often use this data to help determine insurance premiums.
When it comes to understanding your credit score, the concepts of ‘soft pull’ and ‘hard pull’ are crucial. Both are ways that companies can check your credit, but they have different implications for your credit score.
Soft Pull Versus Hard Pull Inquiries
A soft pull, or a soft inquiry, doesn’t affect your credit scores. Soft pulls occur when a company or person checks your credit as part of a background check or when you check your own credit score. Companies check your credit without your explicit permission to determine your eligibility for preapproved offers, such as credit card promotions or insurance quotes. Insurance companies carry out a soft pull to get your credit information, but these types of inquiries do not show up on your credit report. So, it doesn’t impact your credit score.
A hard inquiry is a thorough credit check that happens when you apply for a loan or credit card. It’s called a ‘hard pull’ because it can sometimes lower your credit scores by a few points. Lenders and creditors conduct hard pulls to assess your creditworthiness when you’re requesting credit. Hard inquiries usually stay on your credit report for about two years, but the impact on your credit score usually decreases over time.
While both hard and soft pulls provide lenders, creditors, and other companies with information about your creditworthiness, only hard pulls can negatively impact your credit score. However, the effect of hard pulls is generally minimal and temporary. If you have a less-than-stellar credit score, you can enlist the help of credit repair companies like The Phenix Group to boost your credit score. We thoroughly understand credit reporting laws and scoring models, and can guide you with strategies to enhance your creditworthiness.
What Factors Affect Insurance Approvals?
Remember that a good credit score does not necessarily equate to a favorable insurance review. This is because importance is placed on different aspects of the credit data depending on whether the purpose is to predict loan default risk (credit score) or claim-filing risk (insurance score).
Risk Assessment
Regardless of the type of insurance, carriers are constantly assessing risk. Risk is typically determined by analyzing historical data and using statistical models to predict future claims.
For instance, for health insurance, factors such as your current health status, age, and medical history would be used to assess your risk level. For property insurance, the condition, location, and value of the property are important risk factors.
Claims History
Insurers will typically look at your history of claims. If you’ve filed numerous claims in the past, this could indicate that you’re more likely to file claims in the future, thereby increasing your risk level for the insurance company.
Lifestyle Factors
Depending on the type of insurance, various lifestyle factors may also come into play. For instance, for health and life insurance, habits such as smoking or excessive alcohol consumption could negatively impact your chance of being approved by an insurance company.
Occupation and Income
For certain types of coverage, your occupation could play a role in the approval process. Some jobs are considered riskier than others. Your income level may also affect the approval process, especially in types of insurance where premium amounts are tied to income, as with certain life insurance policies.
Location
The area where you live can significantly impact your approval chances. For instance, for home insurance, if your property is located in a region prone to natural disasters or high crime rates, it may be more challenging to get coverage. Similarly, health insurance carriers may consider local environmental factors impacting health, such as proximity to a known contamination site.
More About Insurance Scores
Many insurance providers use what’s known as an ‘insurance score’ (which is influenced by your credit score and other financial factors) to predict your likelihood of filing a future claim. A higher score typically indicates less risk and could improve your chances of being approved for coverage.
Your bill payments record, amount of outstanding debt, credit history, and recent credit applications all influence the insurance score. If bankruptcy (and subsequent reaffirmation agreement after discharge) is part of your financial history, you may want to talk with your potential insurers to see what impact it might have on your rates or coverage options.
To Sum Up
Unlike credit scores, which are accessible and visible to you, insurance companies typically do not disclose or keep track of insurance scores.
If you need help repairing and improving your credit score, reach out to the experts at The Phenix Group. Our credit professionals can help pave the way to better credit so that you get far better loan terms and financial opportunities!