Credit Advice

Inquiries by your credit card provider will not hurt credit scores

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Credit Advice

Inquiries by your credit card provider will not hurt credit scores

Dear Experian,

I'm an insurance agent with a client who has a credit card that seems to be regularly doing credit checks on him, I think to raise his limit. His insurance carrier indicated an adverse action for too many credit checks. Is it possible that these credit checks by credit card companies would adversely affect his credit score?

- ARL

Dear ARL,

Inquiries resulting from account reviews by existing creditors are treated just like inquires for preapproved credit offers. The inquiry is shown only to the individual consumer. Because the inquiry is not provided to anyone but the consumer it cannot be used in credit score calculations and will not affect credit scores.

The only time inquiries are shown to other lenders is if the consumer applies for credit. In that case the inquiries could have an impact on the credit scores and may be listed as one of the factors affecting the lender’s – or in this case insurance company’s – decision.

However, inquiries have a very small influence on credit scores. They only become a significant factor if there are other more serious issues. I encourage you to ask for more information from the insurance carrier about the other factors influencing its decision.

When a credit score is calculated, a series of four, and sometimes five, risk factors are identified that most affected that score. I suspect that, if the insurance carrier can provide the other factors, you will discover what the more serious issues are.

Inquiries for insurance purposes are also a hot topic recently and are much misunderstood. Insurance inquiries also are treated like inquiries for preapproved offers, and so have no influence on your client’s credit scores.

The Fair Credit Reporting Act (FCRA) has allowed insurance companies to review credit reports since the law was enacted in 1972. Legislators recognized then that evaluating a credit report when opening a new policy was an important tool for insurance companies. Reviewing the credit report helps insurance companies verify that a person can afford to and will likely pay their premiums on time.

More recently, insurance scores have been developed that help insurance companies analyze the likelihood that a person will make claims, in part based on their credit history.

A credit report is just one element in determining insurance rates and approval. Insurance companies may also look at your driving record or claims history. Those issues may be incorporated into the insurance score along with credit history information.

Thanks for asking.

- The "Ask Experian" team

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