Do I Need To Unfreeze My Credit To Shop for Car Insurance?

If you regularly listen to money expert Clark Howard, then you know he's a fan of freezing your credit to protect your finances. And when it comes to auto insurance, the consumer champ encourages you to shop around for the best rates.

But many auto insurers use your credit score as a factor to determine how much you’ll pay for coverage. This begs the question: Do I need to unfreeze my credit to shop for car insurance?

In this article, I’ll answer questions about credit freezes and car insurance, including:

• Do I Need To Unfreeze My Credit To Shop for Car Insurance?
• How Do I Know if My Insurance Went Up Because My Credit Is Frozen?

Do I Need To Unfreeze My Credit To Shop for Car Insurance?

When you freeze your credit, you block creditors from accessing your credit report. This can be a great way to protect yourself from fraud since no new credit accounts can be approved under your name. However, a credit freeze can also hinder legitimate attempts to access your credit.

When it comes to auto insurance, most states allow insurers to use your credit as a factor in determining your premiums. So of course, most insurers want to check your credit to figure out what to charge you.

Car insurance companies use a soft inquiry when checking your credit. This means most insurance companies can still give you a quote while your credit is frozen. Even if you get a quote, some companies might not finalize coverage while your credit is frozen.

According to Experian:

"If you freeze your credit reports, you'll need to unfreeze (or "thaw") them for lenders to be able to process your legitimate credit applications. You'll also have to remove a freeze to grant access to landlords, cellphone providers, insurance companies, car rental agencies and other nonlender parties that perform credit checks as part of their business practices."

Let’s say a company will finalize coverage while your credit is frozen. Just because they’ll do it doesn’t mean you’ll get the best deal.

Some insurers might see your score as an NH — or "no hit" — score. In this case, the insurance company will treat you as if you don't have any credit history. If they decide to insure you anyway, this can result in higher rates because you're viewed as a higher risk for the insurer. And if you have excellent credit, this also means you miss out on discounts based on your score.

How Do I Know if My Insurance Went Up Because My Credit Is Frozen?

If your credit score negatively impacts your insurance premiums, insurance companies have to tell you. The Fair Credit Reporting Act (FCRA) and Risk-Based Pricing Rule require insurers to give you an adverse action notice if they:

• Deny you of coverage based on your credit report
• Offer you coverage with "less favorable terms" based on your credit report

So — whether you’re shopping for new insurance or your coverage is up for renewal — if your rates are higher than expected and you get an adverse action notice letter, you’ll know that your credit is at least partly to blame.

With a new policy, an adverse action notice will typically be included in the documents you receive upon signing up. For renewals, insurance companies are required to send the letter within 30 days of your premium change.

If you receive this letter, call your insurer for more details. Then, you can unfreeze your credit temporarily so they can look and adjust your rate as needed.

Final Thoughts

When shopping for car insurance, you might benefit from temporarily unfreezing your credit. Some insurance companies might approve coverage while your credit is frozen, but other companies might not be able to see what they’re looking for to decide if you’re insurable.

And even if a company is willing to insure you while your credit is frozen, you might miss out on better rates, especially if you have excellent credit and qualify for credit-based discounts.

The post Do I Need To Unfreeze My Credit To Shop for Car Insurance? appeared first on Clark Howard.