Insurance companies each have their own unique method of judging the risk presented by a potential applicant. A major component of this secret formula, like seemingly all things in modern life, is the persons credit score. At first it may seem strange but in all actuality there is not that many criterion with which to fairly judge applicants and if you were insuring someone, would you rather insure the person with the perfect credit or the terrible credit. In many cases having your credit checked by a lender can temporarily lower your credit score by a small bit. That small bit could cost you extra money on your insurance premiums. Therefore if you are in the market for a new home or income property it is best to start the application process with your insurance agent before seeking a loan.
Inquiries for insurance purposes are “soft” inquiries, meaning they only appear on your personal credit report. They are not provided to lenders and so do not affect credit scores.
When the Fair Credit Reporting Act was first passed in 1972 it included insurance purposes as one of the reasons businesses could check your credit report.
Originally, checking your credit report gave insight into whether you could afford to pay your monthly premiums. As technology became more sophisticated, insurance companies developed systems that enable them to predict the potential that someone will file claims, based in part on the information in a credit report.
Every time your credit report is accessed, an inquiry is added to your credit report. An inquiry is simply a record of that access. There are two kinds of inquiries.
Inquiries that are the result of your application for credit are shown to other lenders and can affect credit scores.
Other inquiries, which are not the result of your application for credit, are shown only to you on your personal credit report and do not affect credit scores.
Inquiries for insurance purposes fall into the second category because they do not involve a credit relationship. Other types of inquiries in this category include those for employment purposes, account monitoring by existing creditors and preapproved credit offers.
Because you do not ask for the preapproved offer to be sent, the inquiry made to determine if you qualify for the offer is shown only to you.
If you later choose to accept the offer and send in the application form, the company can check your report to be sure you still qualify. That inquiry will be shown to lenders and can influence credit scores because you have then applied for credit.
(source Experian)
In many cases the score that the insurance company will use to evaluate your risk will remain affective for 30 days, during which time you can line up your loan and not affect your insurance rates.
