3 Ways Credit Scores Can Affect Your Home Insurance Rates

If you own a home, it is a priority to have the protection that you need for your property and your family. In most places, you must hold an insurance policy that covers damage to your home and liability. While this is an essential expense, most homeowners gripe about the costs of their premiums.

One of the ways to get the best prices on your home insurance is to maintain a strong credit score. You may think that your credit score is only essential when taking out a loan or applying for a new credit card. However, your credit rating will influence your insurance premiums.

Having good credit can help you appear like less of a risk to your insurance company. Insurance brokers use your credit score in their underwriting process to help them evaluate your risk and calculate the cost of your policy. If you have credit issues, you may have to shop around for homeowner’s insurance quotes. Let’s take a closer look at a few ways that your credit scores can affect your home insurance rates.

Credit-Based Insurance Score

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When you apply for insurance coverage on your home, the insurance company will begin to evaluate your risk factor and will investigate your financial history, including your credit scores. Insurance companies will review your credit report to help them establish your credit-based insurance score. This score will indicate the level of risk that is associated with extending you a policy.

Some states restrict the ability of insurance companies to complete a credit check on potential clients. However, in over 85% of locations, this type of investigation is permitted. You should expect that your insurance company will be doing a credit review on your application.

Insurance companies are looking for several things when they investigate your credit report. Along with the normal delinquencies on your account, they are interested in your available credit and past payment history. 

Credit-based insurance scores are not public. When an insurance company requests a credit check, it will not affect your credit score in the same way as it may when a potential lender does an investigation. If your score is too low, the insurance company may deny your application or charge you higher rates for your premiums.

Application Difficulties

Having a poor credit score won’t necessarily prevent you from getting a home insurance policy. However, it may interfere with getting the policy that you want from your preferred broker. All insurance companies have different requirements when it comes to qualifications for coverage.

If you have a low credit-based insurance score, you may have to do some shopping around for a policy. You may be denied coverage from your preferred broker, but that doesn’t mean that you won’t find a policy somewhere else. If you have credit issues, you will likely need to deal with a company that deals with high-risk applications. When you get a policy with a high-risk insurance company, you can get the coverage that you need, but you will almost certainly be paying higher prices. 

If you have filed for bankruptcy, you could run into trouble securing a home insurance policy. If your bankruptcy has yet to be discharged, you could find it tough to get the coverage that you need. You will most certainly have to work with a specialty insurance broker to find a homeowner’s policy.

Higher Premiums

If you have a poor credit score, you can count on paying higher premiums for your homeowner’s insurance policy. Your insurance company will weigh the risks for non-payment on your policy and protect their interests by charging you more on your overall policy. For most homeowners, an insurance policy is required by their lender, so if you have poor credit, you may be stuck paying more.

Improving Your Credit

If you want to reduce your insurance costs, a good place to start is by working to bring up your credit score. The higher your credit score, the lower your insurance premiums will be.

The first step towards improving your credit score is to take a look at your own credit report. It’s important to review your report and ensure that there are no errors. It’s not uncommon for old debts or mistakes to show up on your credit report that will affect your score.

Your next step to improve your credit is to pay off any old debts. You want to remove as many delinquent accounts as you can from your report to help increase your score.

The most important step towards improving your credit score is to start making all of your payments on time. Paying your loans early, settling credit card balances and household bills on time can help you boost your score quickly.

When you apply for a homeowner’s insurance policy, keep these factors in mind as these will affect your credit-based insurance score. 

Steven Millstein

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