How Your Credit Score Affects the Cost of Your Property Insurance

How Your Credit Score Affects the Cost of Your Property Insurance

Your credit score affects your premium prices and your eligibility to purchase homeowner's insurance, whether you're buying or renewing a policy. Most insurance companies base the amount of your premium payment on your credit score.

What Is an Insurance Score Based on Credit?

Despite having characteristics in common with regular credit scores, credit-based insurance scores are not determined similarly. Only a few of the variables that make up a conventional credit score are taken into account by insurance scores.

Insurance firms have used credit scores since the 1990s to forecast risk and determine premium costs. According to the credit-scoring company FICO, approximately 85% of insurance firms base their premium rates on credit-based scores. According to some studies, those with poor credit may have to pay nearly twice as much for homeowner's insurance as those with strong credit. You could not be approved for coverage if your credit is extremely poor.

Payment history and hard queries are two crucial variables insurance companies consider when calculating your credit score. Lenders are involved in hard inquiries, such as when you apply for a credit card or loan. Making all of your queries within a 45-day window can help you avoid negatively affecting your credit score by hard inquiries. They handle all inquiries as one during this time.

How Is Your Credit Score Calculated?

The science of credit scores is not exact. Both lenders and credit bureaus employ unique measurements. LexisNexis Property Insurance Scores, for instance, employs the following ranking:

Excellent: 776 to 997

Below Average: 501 to 625 Average: 626 to 775

Less Desirable: 500 or less

Credit ratings can differ between agencies. The majority fall between the ranges mentioned above.

The amount of debt you have, the age and usage of your credit accounts, and your credit limits are other variables that can affect your credit score. Experian, Equifax, and TransUnion, the three credit agencies, assign these scores various ratings. If payment history accounts for 40% of your score with one company, it might only account for 30% with another. Another distinction is that, unlike your credit score, your insurance score is unaffected by factors like your employment or income history.

You could ask your agent if your insurance provider used your credit report by contacting them. The Fair Credit Reporting Act Action Notification (FCRA) should notify you if your credit report negatively impacted your rate.

You should also be familiar with the regulations in your state regulating the estimation of rates using credit reports. For instance, it is illegal for insurers to use your score to increase your homeowner's insurance price in Maryland and Hawaii. Other states might permit it, but they wouldn't drop you or refuse coverage based on your credit report.

How to Raise Your Credit Rating

Your credit score can be raised with a few easy steps. Getting control of your debt consumption is an excellent place to start. As a general rule, limit your utilization to no more than 30% of your overall credit line.

You should also ensure that your credit limit is accurately reported by checking. If the credit bureau conducts a background check and discovers a gap in your card's credit limit, it can have an impact on your rates. Agencies use only reports with established credit limits as determining criteria in insurance ratings.

Having a firm grasp of your payment history is another approach to raising your credit score. Pay your invoices on schedule, and challenge any billing mistakes. A lot of credit card firms will overlook a single error. Try to make substantial payments when you can. Few people can pay off all of their debt at once, but your credit score will improve even if you can reduce your load by 10% every month.

Many websites claiming to give free credit reports may charge you. At annualcreditreport.com, you may view your credit report once a year for free. The website was developed collaboratively by Equifax, Experian, and Transunion to abide by the Fair Credit Reporting Act. All three main bureaus offer free credit reports that won't lower your credit score. This enables you to confirm the accuracy of your report. Many mistakes appear on credit reports. They can be avoided by being conscious of your credit situation.

You can also comparison shop if you think your house insurance premiums are excessively expensive because of your credit score. It's referred to as a soft inquiry when insurers check a person's credit-based insurance score. Looking at what other agencies offer you is advantageous for you because soft inquiries do not negatively impact your credit score the way hard inquiries may.