Does Your Credit Score Affect Homeowners Insurance Rates?

Having good credit can make your life easier – and that’s a fact. You see, your credit score affects more than your ability to apply and get approved for loans and credit cards. It can also raise your overall credibility in the eyes of many financial institutions, insurance companies included.

Not many people know this, but your credit health may impact the price you pay for a home or rental property insurance policy. Like lenders, insurance companies look at your credit history to know how much of a risk they’re taking with you and to come up with the appropriate rates.

Having a poor credit rating can sometimes send the wrong message; that you’re struggling to pay your debts as agreed and, therefore, a higher insurance liability. While other factors also affect how insurers determine homeowner’s insurance premiums, the rates tend to be higher for people with bad credit.

Understanding Credit-Based Insurance Score

Insurance companies frequently use your credit history to generate your credit-based insurance score (CBI) or insurance score. They check and analyze your past financial behavior to help them decide what rate to offer you. Do you have existing debts? Are you paying them on time? How frequently do you miss your bill payments? These are some aspects they look at.

Your CBI score is somewhat similar to your FICO score. However, the exact formula for calculating CBI may vary from insurer to insurer. Depending on the insurance provider you choose and/or your location, a poor credit rating can raise your rental property or homeowner’s insurance premium up to thirty percent.

Because most insurance providers have their own internal company models for calculating CBI scores, there’s no way of knowing for sure what your CBI is. What we do know, however, is your insurance score is primarily based on your credit score. A quick check of your credit report should give you an idea of whether your credit rating is going to positively or negatively impact your insurance rates.

FICO reports that around eighty-five percent of insurers perform credit checks on their applicants. Customers with good or excellent credit standing – meaning they have credit scores of 600 or higher – can potentially save around twenty percent on their base homeowner’s insurance or renters insurance rate. Below is a comprehensive list of factors that affect your credit-based insurance score.

Factors that help increase your CBI:

• Types of Credit You Have: (5%) The mix of credit cards, auto loans or mortgages, and credit cards.

• Extensive credit history: (15%) How long your credit accounts have been open?

• On-time credit and bill payments: (40%) – Have your payments been on-time and how frequent the payments have been made?

• Total Debt Utilized: (30%) How much actual debt do you have, especially in regards to how much debt is available to use?

• Obtaining New Credit: (10%) The length of time since seeking new lines of credit.

Factors that may decrease your CBI:

• Outstanding debts and credit accounts in collections

• Several overdue bills and credit payments

• High credit utilization

• Multiple recent credit applications

Other Factors Affecting Home Insurance Rates

While good credit plays a big part in helping you secure competitive insurance offers, there are plenty of other factors that affect how insurance providers determine the rate of your premiums. Different insurers have varying standards, but these factors typically include:

• Prior insurance loss history

• Construction type of your home

• Distance of your home or property from fire hydrants/fire station

• Security and safety features in your home, such as fire alarms, smoke detectors, security alarms, etc.

• Other factors deemed necessary by the insurance provider

Aside from the factors mentioned above, insurance companies may also offer discounted premiums to homeowners and families who meet specific qualifications. Retirees and veterans usually enjoy discounted insurance rates. Purchasing multiple insurance policies from the same company may also entitle you to a cut on your premiums.

Insurance agents don’t discuss these discounts upfront, so make sure to ask them about other discount offers when applying for homeowner’s insurance.

Can You Get Competitive Insurance Rates with Bad Credit?

If you’re worried about getting home insurance because of your poor credit history, don’t be. It’s uncommon for insurers to decline to sell you a policy based on a bad credit score alone. As previously stated, your CBI score is a critical factor, but it is not the only one.

Even with bad credit, you may still find modest insurance rates if your home is well-maintained and you have rarely made insurance claims in the past. If, however, you end up receiving a steep quote or were rejected outright by an insurer because of your credit history, don’t throw in the towel yet. There are still plenty of insurance companies out there, each one with slightly different standards. The key is to shop around.

How to Improve Your Credit Score

While it’s possible to find an inexpensive premium even with bad credit, it won’t be easy, and the chances are slim. With a consistently high credit rating, however, you’ll receive excellent deals time and time again.

Your credit score is a substantial factor in determining not only the rate of your insurance premium but your overall creditworthiness. Do you want to improve your credit score? Avoid unnecessary debts, make payments on time, and limit hard inquiries of your credit if your score can’t handle it. It may take a while, but these steps will pave the way to better credit in the long run and help you keep your credit score at its best.