Does Your Credit Affect Your Insurance Premiums?

March 23, 2021

Your credit score affects many things including your homeowner’s insurance premiums. While the way insurers look at your credit isn’t the same as a mortgage lender looks at it, there’s still a need to have good credit if you want the best homeowner’s insurance rates available today.

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What Credit Score do You Need?

There isn’t a specific credit score that you need to get good insurance rates. Each insurance company uses your credit score differently. Some don’t even look at the score itself, but rather focus on certain factors in your credit history, such as:

  • Your payment history – Do you pay your bills on time or do you have a lot of late payments? This gives the insurance company an idea of how well you might pay your insurance premiums.
  • The type of credit outstanding – If you have a lot of revolving debt, you pose a higher risk to insurance companies than if you had mortgage-related debt. Some revolving debt is okay, but within reason. If you have overextended credit lines and a lot of them, insurance companies see you as high risk.
  • The number of recent inquiries – Insurance companies also focus on the number of inquiries on your credit report in the last year. If you’ve applied for numerous loans or credit cards, it throws up a red flag.

What Insurance Companies Use Your Credit Score For

Once an insurance company knows your credit score and/or credit history, they use it to decide if they want to insure you. If they do, they use this information to come up with a credit-based insurance score. This score will determine the premiums that the insurance company charges you.

Your credit score/history is one of the main factors in this score. Insurance companies use it to determine how likely you are to file a claim on your homeowner’s insurance. There’s a correlation between poor credit history and multiple homeowner’s insurance claims. An insurance company obviously wants to make sure that you pose a low risk for a claim.

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Just as an insurance company wouldn’t offer you insurance if you previously filed 3 claims on your homeowner’s insurance, they may not offer you insurance if you have bad credit. They want to minimize the risk of claims, as that is how insurance companies make a profit.

Reasons Your Credit Score can Make it Hard to Get Homeowner’s Insurance

Luckily, your credit score alone won’t make you ineligible for homeowner’s insurance. Just as is the case with a mortgage, insurance companies look at the big picture. Your credit-based insurance score is just a piece of the picture. They also look at your history of owning a home. Did you file claims before? What did you file them for? Were they avoidable claims? Were they large claims?

If you have a history of making claims combined with a low credit score, your chances of getting insurance with good rates are slim. If you have a high credit score and say one claim in the past, though, you have a higher likelihood of getting the insurance rates you wanted.

The best thing you can do to make sure you get the best insurance premiums is to maximize your credit score. Make your payments on time; don’t overextend your credit, and don’t apply for new credit. This way you can increase your chances of securing good insurance rates.

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