Is Homeowner’s Insurance Based on Credit?
The rates you pay for homeowner’s insurance coverage are based on many factors, including the value of your home and your claim history. Your credit history also plays a role in how much you pay for homeowner’s insurance premiums.
Credit Score Correlation
Homeowner’s insurance is designed to provide you with some protection against accidents that damage your home.
Since accidents are unpredictable, it may seem like a credit score could not help insurers project how many claims you will file.
However, insurance companies have found that there is a direct correlation between your credit score and how many claims you file. Those with lower credit scores tend to file more claims over the long term. This means that insurance companies will charge you a higher premium if you have a low credit score.
Insurance Credit Score
When the insurance company looks at your credit information, it uses a credit score that is created especially for the insurance industry. Your insurance score looks different than what you would see with a traditional credit score from a mortgage lender.
While this score is still based on the same factors, each factor is weighted differently as insurance companies value different items. Insurance companies put more emphasis on stability such as a consistent payment history.
When the insurance company calculates your credit score, the score is based on many factors in your credit report. For example, up to 35 percent of your insurance credit score is based on your payment history.
If you pay your bills on time, this part of your score should be strong. The length of your credit history is also important to the insurance company. The amount of debt you have compared to the amount of credit available to you is another important factor.
Lowering Your Rate
If you are interested in lowering your homeowner’s insurance premiums, take steps to improve your insurance score. For instance, getting in the habit of paying all your bills on time can significantly increase your score and lower your premiums. If you have credit card debt or other types of debt, paying down the balances can improve