Jessica Sautter has a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around auto insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

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Reviewed by Natasha McLachlan
Content Writer Natasha McLachlan

UPDATED: Oct 1, 2020

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For the most part, insurance companies will check your credit when offering a quote for a policy. There are exceptions, but that depends on where you live. Checking credit is an important part of the evaluation process that insurance companies perform before offering a quote for their policies.

Why do Car Insurance Companies Check Credit History?

Raising Credit Score Takes Time and Worth it in Long Run

Generally, credit checks are made when applying for a loan. Insurance companies check your credit to assess the risk you present in terms of paying the premiums and regarding your driving. It may seem hard to believe, but statistics show that people with poor or bad credit represent a bigger risk in having an accident. Insurance companies will set their rates based in part on your credit history.

Conversely, if you have a good credit rating, excellent driving history, and no recent claims on your insurance, then you may qualify for lower rates. Therefore, if you are looking to have your rates lowered, an improved credit score just might do it assuming you maintain a good driving record.

When you pay your premiums by the month, that is in a sense taking out a loan. Instead of paying for the full six months of the policy, paying each month is like paying out a loan. That’s why car insurance companies will have a 10% to 20% deposit fee when paying monthly, but the fee is skipped when you pay for the full six months.

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Do Credit Checks by Insurance Companies Affect Your Credit Rating?

This is a concern for many who understand that when lenders check credit scores, it can have an effect. However, insurance companies use what is called a soft pull, which means that the ratings themselves are not affected. This is because your credit is not being checked because you are seeking a loan, but rather for other reasons.

Of course, insurance companies may under certain conditions report to the credit bureau if they must use collection agencies when you fail to pay your account. If you keep up your payments, an insurance company will have no reason to report you to the credit bureau.

Where Insurance Companies Cannot Check Your Credit?

Currently, there are three states where insurance companies are forbidden by law to check your credit, California, Hawaii, and Massachusetts. There can be no credit car insurance quotes given by insurance companies in these states. Whether that makes the insurance rates higher in those states is questionable, but the concern over privacy pushed through the laws banning the use of credit checks by insurance companies.

In the rest of the US, insurance companies will check your credit as part of the evaluation process. Unless more states pass laws banning the practice, it will continue for the foreseeable future.

Keep in mind that your credit score is one of many different factors that insurance companies use to evaluate and set your premiums. Other factors such as your age, gender, history of claims, and your driving record are usually more significant. You can always take some steps to improve the credit score.