Blog

How credit impacts homeowner insurance

By Philip Tirone

In many states, homeowners with fair credit pay about 36 percent more on their homeowner insurance rates than those with excellent credit, and homeowners with bad credit pay more than double.

This comes from an article in the New York Times and was based on rate-comparison quotes.

And the gap is widening. In 2014, homeowners with bad insurance paid 91 percent more than homeowners with great credit, but that increase climbed to 100 percent in 2015 and 114 percent in 2017.

Most people know that their credit history play a huge role in determining interest rates on car loans, mortgages, and credit cards, but they often fail to consider the other ways credit history can impact their lives: Many employers consider a person’s credit history, as do landlords. Utility companies often require deposits from people with poor credit. And, in most states, it appears that insurance is also impacted.

Insurance companies in all but three states (California, Maryland, and Massachusetts) use something called an insurance score as part of their calculations when determining the rate a person will pay on insurance policies. Of course, other considerations are taken into account, like the age of the home and the quality of its roof, but the insurance score is a big part of the calculation.

Like a credit score, an insurance score is based on your credit history.

So how can you raise your insurance score?

You can raise your insurance score in much the same way you raise your credit score. Here are a few ideas:

  1. Pay your bills on time each and every month.
  2. Keep a low balance on your credit scores (less than 30 percent of the limit). Having a high balance tells the scoring agencies that your experiencing financial strain and turning to credit cards because your cash flow is low. This erodes your score and increases your rate.
  3. Build new credit around old credit. If you have experienced a financial meltdown and have accounts that are not in good standing, you need to open new credit cards and installment lines of credit that are in good standing. Consider the old, bad credit like an “F” on a report card. If you have a few “F” grades surrounded by a whole bunch of “A” grades, the scoring agencies will see that you have turned over a new leaf. If all you have are the old “F” grades, the scoring agencies will worry that you are still experiencing financial stain.

Finally, be sure to shop around for the best rate on your homeowner insurance. When you see your credit score start to improve, shop around again. At least annually, ask your current insurer to review your account and consider lowering your rate, and then compare your new rate to quotes from other companies.

Google Rating
4.9