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How Credit Scores Can Affect Home Insurance Premiums
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.
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.
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.
David Owens is a seasoned content writer specializing in finance - debt management, entrepreneurship, and business finance.
When not writing, he travels with his cat, Mellie.