What’s a credit score?
What does it mean to buy things “on credit,” and what’s a credit score? Using credit means you’re obtaining goods or services before paying for them. It’s understood that you’ll make a payment in the future. A credit score is an indicator of how likely you are, based on your past behavior, to make that future payment.
Lots of factors impact your credit score, including:
- Your payment history. Do you make your payments on time?
- Outstanding debt. Have you overextended yourself?
- Length of your credit history. How long have you been using credit responsibly?
Credit scores range from 300 to 850. The higher the number is, the less risky you appear to lenders. Having good credit or a high credit score can affect your ability to qualify for a loan, as well as the loan’s terms.
In other words, good credit may result in benefits like a better interest rate or higher loan amount.
How does my credit score affect life insurance?
You may be happy to learn that your actual credit score won’t have an impact on whether you qualify for most life insurance coverage. But your credit history may play a part.
Not all life insurance companies check credit history as a part of their underwriting process. In fact, most only check it in certain uncommon situations. For example, companies may pull your credit report it if you’re applying for a large amount of coverage or you have a history of bankruptcy.
However, insurance companies have started checking credit more frequently for policies that advertise expedited underwriting or no medical exam.
Some insurance companies may use your credit history to assign an insurance score, which plays a part in determining your overall risk rating. This risk rating, along with other factors, can ultimately affect your premium and ability to purchase insurance.
How does an insurance company check my credit?
Typically, if an insurance company needs to check your credit, it’ll conduct a soft inquiry. This is also known as a soft credit check or soft pull. Soft credit checks are usually done as part of background checks, not as part of an application for new credit.
Soft pulls are often used when:
- You check your own credit.
- One of your current creditors checks your credit.
- A company checks your credit to see if you qualify for preapproval offers.
Soft credit inquiries aren't linked to any specific credit application, so they may or may not appear in your credit report. As a result, they don't affect your credit score like hard credit inquires that result from loan or mortgage application.
How can I make sure my credit won't affect my life insurance?
If you're concerned about how your credit history might affect a life insurance application, consider the following advice.
- Before applying for life insurance, do your research. Check your own credit, so you're aware of anything unexpected from your past and can set your own expectations. Getting multiple life insurance quotes won't affect your credit score, so there's no need for concern there.
- Ask the insurance company about the underwriting process and what type of credit inquiry they may perform. This can help you prepare for any potential impact to your life insurance application.
Ultimately, by paying your bills on time, keeping debt balances manageable and monitoring your credit report for errors or fraudulent activity, you can maintain a clean credit history.
Don't lose hope. Even if your credit isn't the best, you'll likely still be able to get good life insurance coverage that meets your needs.
How much life insurance do you need?
Use our life insurance needs calculator to find out.