Insurance companies consider multiple factors when deciding
your home insurance premiums. They check the value of your
home, the materials it's made of, its age, the location, and
your
credit score.
Yes, your credit score plays a role in how much you pay for
homeowners insurance. Insurers use credit-based insurance
scores to help predict the likelihood of a future claim.
Studies have shown that people with lower credit scores are
more likely to file insurance claims.
Let's look at how credit scores can affect home insurance
premiums.
A Poor Credit Score Can Lead To A Higher Premium
Those with bad credit may be seen as a higher risk by
insurance companies and thus may be charged a higher premium
for home insurance, as studies have found a correlation
between poor credit and the likelihood of filing an
insurance claim.
The more a person is likely to file a claim, the more of a
financial risk they are to an insurance company. Because
each time a policyholder files a claim, the insurance
company must pay out money to cover the damages.
If you have bad credit and are looking for
home insurance, be prepared to pay a higher premium. That's how insurance
companies mitigate the risk of insuring someone with poor
credit.
But it's not all doom and gloom. There are a few things you
can do to offset the higher cost of home insurance if you
have bad credit:
Shop Around And Compare Rates From Different Insurers
One of the things you can do is
shop around and compare rates
from different insurers. Just because one insurance company
charges you a higher rate doesn't mean they all will. You
may be able to find an insurer who is willing to give you a
better deal.
Look For Discounts
Another thing you can do is look for discounts. Many
insurers offer discounts for things like having a good
credit score, installing security devices, or being
claim-free for a certain period. So make sure to ask about
any discounts available to you.
Raise Your Deductible
One final thing you can do is raise your deductible. Of
course, you'll be paying more out of pocket if you have to
file a claim. But it may help to lower your overall premium.
A Good Credit Score Can Lead To A Lower Premium
On the other hand, those with good credit scores can enjoy
lower home insurance premiums. Insurance companies perceive
them as lower risks, and lower-risk borrowers are entitled
to cheaper rates.
According to valuepenguin.com, excellent credit score
holders (800-850) pay at least $2,053/year, while those with
bad credit scores (300-599) may have to pay as high as
$5,903/year. The difference is significant, so it pays to
have a
good credit score.
Imagine saving over $3,000 a year on your home insurance
because you have good credit. It's worth working on your
credit score if you plan to buy a home soon.
Other Benefits
Besides lower home insurance premiums, those with good
credit scores can also enjoy other benefits such as:
- Lower interest rates on mortgages and auto loans
- Higher credit limits
- Better terms on financial products
-
A lower deposit for utilities and cell phone service
-
Easier approval for apartments, rental cars, and other big
purchases
As you can see, there are many benefits to having a good
credit score. If you're unsure what yours is, you can check
for free on Credit Karma or Annual Credit Report websites.
Boost Your Credit Score
Now that we know how credit scores can affect home insurance
premiums, let's look at ways to boost your score.
One way to boost your credit score is by paying your bills
on time. It includes your monthly bills (e.g.,
life insurance policy, mortgage, car payment) and other recurring payments
(e.g., gym membership, Netflix subscription).
Creditors are more likely to trust borrowers who have a
history of making timely payments, so make sure you stay on
top of your obligations. You can also improve your credit
score by using credit wisely.
That means keeping your balances low and only borrowing what
you can afford to pay back. Using credit responsibly will
show creditors that you're a reliable borrower, leading to
lower interest rates and better terms on future loans.
Also, be sure to check your
credit report
regularly for errors. If you spot an error, dispute it with
the
credit bureau. You can help improve your credit score and save money on
your home insurance premiums by taking these steps.
Final Thoughts
Not all states use credit-based home insurance scores, but
most insurance companies will factor in your credit score
when calculating your premium. Therefore, it's best to keep
your credit in good shape to get the best rates on your home
insurance and low premiums. Otherwise, you could be paying
hundreds of dollars more each year than you need to.