There are many different discounts and incentives offered by home insurance companies: having a concurrent life insurance plan, paying your premium annually rather than monthly, going paperless with your bill statements, and paying through an electronic fund transfer. One of the biggest factors that will impact your home insurance premium is your credit score.
Your credit score is a three-digit number that provides lenders, insurance companies, and others with information about your past credit history. The numbers range between 300 and 850, with a higher score indicating good credit.
Your individual score is based on your bill payment history, the amount you owe in various accounts, how long you have held credit, your new lines of credit, and the types of credit you use. Information about your personal life, like your marital status, age, residence, employment history, or your race are not factored into your score.
When you purchase home insurance, your insurance company will access your credit score and examine certain factors to determine your insurance score. The insurer is not concerned with your ability to hold credit, but the risks involved in having you as a policyholder. Insurance actuaries have shown that your insurance score, as well as other factors, are helpful in setting an accurate premium rate. The insurer wants to know how likely you are to file a claim, and they believe that having a lower insurance score means that you will be more likely to submit a claim.
Having a good credit score, and therefore a good insurance score, will mean lower insurance rates. Your insurance score and your rates may be different between insurance companies because there are three different credit bureaus that have your credit score and each may be slightly different. In addition, the calculations that your insurance company uses to determine your insurance score may differ. Maryland and Hawaii are the only two states that currently prohibit insurers from accessing your credit scores for homeowners insurance.
Good vs. Bad Credit
The Texas government has a website called HelpInsure.com which gives a good idea of how a good or bad credit score will affect premium rates. Though the rates will vary between states, it still serves as a good model. For example, if you click on Rates & Policies and fill out the homeowner profile, you have the option to select whether you have good, average, or bad credit. With all other factors being equal aside from credit, the two reports show a large difference in insurance premiums.
In the form completed with the good credit score option selected, the website lists local insurance companies and the annual sample rates for each. Compared to the bad credit score insurance report, the good credit score customer is offered insurance that is between $400 and $600 cheaper per year. That’s quite a discount for simply having a better credit score.
Check Your Score
Since your credit score has such an impact on your home insurance premium, it’s important that you check your score annually to ensure that it is accurate. You can get a free report each year from the three government credit bureaus. Simply go to annualcreditreport.com and get started. This way you can compare your report between the three bureaus and detect whether or not there are any mistakes or if one bureau is missing your updated credit information. If the bureau has an accurate credit score, then your insurance company will calculate a correct insurance score.
If you are dissatisfied with your credit score, there are always ways to improve it. Pay your bills on time, keep your credit card balances as low as you can, and don’t take out any more credit than you actually need. If you get married and your spouse has a better credit score than you, their score can be used to calculate your home insurance rates.
Speak with an independent insurance agent today about the good credit score discount. If your premium rates are high, or your insurance application was denied after the company looked at your credit scores, they are legally required to explain why your insurance score was low.
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