You may have asked yourself, “Do life insurance quotes affect credit score?” It probably doesn’t come as a surprise to hear that your credit history can greatly influence your financial life.
Suppose you’re considering buying a new car — your credit score or credit rating can determine whether your loan is approved and the interest rate you may pay. Likewise with a credit card, home loan, or other types of loans (boat loans, motorcycle loans, even loans to buy solar panels).
But it’s not just lenders that check your credit score. Employers, landlords, and life insurance companies may use credit history to determine approvals and rates.
Why Do Life Insurance Companies Run Your Credit?
You may wonder why life insurance companies consider credit in the first place. The answer is risk prediction. Your outstanding debts, length of credit history, late payment histories, a new credit inquiry, and other factors can help determine your credit score.
Credit scores help others — lenders and life insurance companies alike — to predict the risk of doing business with you. Credit scores range between 300 to 850. The higher the number, the better your credit score is. A good credit score means you are likely a lower financial risk customer, while a bad credit score means you could be a higher-financial risk customer.
If you know your credit score and are wondering where you stand, here is the FICO (Fair Isaac Corporation) standard:
- 800 — 850 Exceptional
- 740 — 799: Very Good
- 670 — 739: Good
- 580 — 669: Fair
- 300 — 579: Very Poor
What’s The Difference Between Your Credit Score And Your Insurance Score?
A FICO score or Vantage Score, also known as a credit score, is a three-digit number based on the information pulled from your credit reports. The credit-based scores lenders use, and the scores used by life insurance companies are not the same.
Lenders look at your regular credit score, while insurers review your credit-based insurance score.
Here’s a breakdown of some key differences and similarities between the two:
- Both types of scores are based upon information found on your credit reports, sourced from the major consumer credit bureaus Equifax, Experian, and TransUnion.
- Lenders rely upon credit scores to predict the likelihood that an applicant will become at least 90 days late repaying a creditor within the next 24 months.
A credit-based insurance score is made up of five factors:
- Payment history (40%) — This includes both the timeliness and accuracy of your payments on past debts.
- Outstanding debt (30%) — This component accounts for how much total debt you currently hold.
- Credit history length (15%) — This looks at the length of time you have held a line of credit.
- Pursuit of new credit (10%) — If you have recently applied for lines of credit, it factors in here.
- Credit mix (5%) — All the different types of credit you have are considered (auto loans, credit cards, mortgages).
Credit-based insurance scores can be important when applying for new coverage, but they are certainly not the only factor evaluated. Life Insurance underwriters consider a variety of other information as well, like your age, health, smoking status, hobbies, and habits.
Do Life Insurance Quotes Impact Your Credit Score?
First and foremost, let it be known that not all credit inquiries are alike. There are two different types of credit inquiries — a hard pull or a soft pull.
A hard pull is voluntary, meaning you would need to give a creditor permission to run a credit check before they can do so. These hard credit inquiries take place when you apply for a line of credit, such as a home loan or a credit card. The lender uses your credit history to decide whether to approve your application and to determine what terms to offer.
If you apply for a line of credit, a hard inquiry serves as a heads up to other lenders that you are looking for credit. An excess of hard pulls can lower your credit score.
Life insurance credit checks are a different story. They use a soft pull to peek at an applicant’s credit history. Soft inquiries have absolutely no effect on your credit score.
Zero. Zilch. Nada. In fact, when you check your credit score independently, you yourself are performing a soft pull.
Insurance credit inquiries are only visible on credit reports you pull yourself, such as reports obtained through a credit monitoring site. They are not viewable on the credit report accessed by lenders or creditors. So, if you’re shopping around to find the best life insurance rate, you can apply for as many life insurance quotes as you want without affecting your credit score.
Why Do Life Insurance Companies Check Your Credit Score?
You might be asking yourself why insurance companies check credit scores in the first place. Smart question.
Credit scores tend to correlate with financial responsibility. These soft credit pulls allow insurers to assess the risk of taking you on as a policyholder.
Do All Life Insurance Companies Perform Credit Checks?
Some states either severely restrict or do not allow credit to be considered for insurance purposes. However, if no state restriction is present, federal law does permit credit reporting agencies to release your credit information for life insurance underwriting (Fair Credit Reporting Act, 15 U.S.C. § 1681).
Whether or not a life insurance provider will require an insurance credit check for new applicants also depends upon individual company policy. However, in general, most insurers do opt to check credit when permitted by law to do so.
It’s good to keep in mind, as mentioned above, that even if you get sixty-three different life insurance quotes (random high number for dramatic effect) and every company checks your credit, your credit score will be unphased (because life insurance companies use a soft pull).
Steps You Can Take to Improve Your Credit
You have the right to check your credit reports at any time to ensure they are healthy and to confirm that the information in your reports is accurate. You are entitled to a free credit report from Equifax, TransUnion, and Experian once every 12 months via AnnualCreditReport.com. If you discover errors or mistakes when you check your credit, you have the right to dispute those errors under the Fair Credit Reporting Act.
Paying down credit cards and other outstanding debt can also help poor credit. Non-profit credit counseling agencies, such as those certified by the National Foundation for Credit Counseling (NFCC), could be helpful if your credit card debt has gotten out of control.
The condition of your credit can impact everything from your monthly auto payment to your ability to land a job. When it comes to life insurance, your credit history is one of the factors that is considered to determine your premium.
How To Shop For Life Insurance If You Have Poor Credit
Insurance credit score is just one of the many things insurers consider when determining life insurance rates. Insurers also factor in your age, gender, medical history, family health history, and smoking status. Older age, poor health, and smoking can lead to a higher premium.
If you have a low credit score or are just starting your credit journey, keep in mind that your credit history and score are just one of the factors taken into consideration with a life insurance application.
With Bestow, you can apply for affordable term life coverage in as little as 5 minutes. Curious about the cost of term life insurance? Get a free quote in seconds. Even if your credit is less than stellar, you might be surprised at just how budget-friendly your rates can be.
Key Takeaways
- Most insurers will look at your credit-based insurance score when you apply for life insurance.
- The type of credit pull life insurance companies use is called a “soft pull,” and it does not affect your credit score.
- You can still apply for life insurance if you have a low credit score but are young and in good health. Term life insurance premiums are lower than permanent life insurance.
