Understanding the Role of Credit in Homeowners Insurance

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Do Home Insurance Companies Check Your Credit?

In most states, your credit history and credit-based insurance scores can impact whether you’re offered a homeowners insurance policy and how much you’ll pay in premiums. An insurance company might not be allowed to deny your application or renewal based solely on your credit. But having good credit could help you get approved and pay less for homeowners insurance.

How Your Credit Score Affects Home Insurance Rates

Insurance companies can usually check your credit when reviewing homeowners insurance applications or renewals. Your credit may also affect other types of insurance, such as life and auto insurance. However, your credit history and credit-based insurance score will generally be one of many factors that insurance companies consider. Some states also restrict or forbid insurance companies from using credit reports or credit-based insurance scores.

Credit-Based Insurance Scores vs. FICO® Scores

FICO creates many types of scores and analytics products for companies, including credit scores for creditors and credit scores for insurance companies.

• Credit-based insurance scores: These predict the likelihood that someone will file insurance claims or that the claims they file will cost the insurance company more money than it collects in premiums.
• Credit scores for lenders: These predict the likelihood that someone will miss a bill payment by 90 or more days during the next 24 months.

Both types of scores usually depend on the information in your credit report. However, because the scores are trying to predict different things, they might consider and weigh your credit information differently. FICO also isn’t the only company that creates these types of scores. VantageScore® offers credit scores for lenders and LexisNexis creates scores for insurance companies. The credit bureaus also create scores based on their credit reports. Creditors and insurance companies also might create their own proprietary scores.

How Your Credit Score Affects Home Insurance Rates

Your credit-based insurance score could potentially have a significant effect on your premiums. All else being equal, going from a very poor credit score to an excellent credit score might save you hundreds of dollars each month.

You can do several things to improve your credit scores and credit-based insurance scores:

• Pay your loan and credit card bills on time.
• Only use a small portion of credit card limits to maintain a low utilization rate. If you can, pay the balance in full each month to avoid interest charges.
• Look for ways to build credit by adding new accounts and positive information to your credit reports.

The impact of negative items in your credit history can also diminish over time, which is one reason regularly shopping for insurance can be important.

Do Home Insurance Quotes Affect Your Credit Score?

Shopping for insurance and getting quotes won’t hurt your credit. Even when insurance companies request a credit report or score, the credit pulls are soft credit inquiries. These inquiries can stay on your credit report for up to two years, but they don’t affect your credit scores.

When you’re applying for a credit card or loan, a preapproval could lead to a soft inquiry and submitting an application can lead to hard inquiry—which can hurt your credit scores temporarily. However, with insurance, applying and getting a new policy still only results in a soft inquiry.

Can You Get Homeowners Insurance With Bad Credit?

Yes, you can get homeowners insurance with bad credit. Even when they’re allowed to use your credit, insurance companies might not be allowed to deny your coverage or renewal based solely on your credit or changes in your credit.

Even if you can’t get insurance from a private insurance company, you may be able to get a Fair Access to Insurance Requirements (FAIR) plan. However, FAIR plans tend to offer minimal coverage and cost more than homeowners insurance from private insurers.

Factors That Impact the Cost of Homeowners Insurance

In addition to your credit, insurance companies may consider the following when determining your eligibility and premiums:

• Location: Your home’s location and neighborhood characteristics can be important. For example, living close to a fire station or in a low-crime area might lead to lower premiums.
• The home’s size, age, renovations and materials: The structure itself is also important, as an older or larger home may pose a higher risk to insurers than a small, newly built or remodeled home. Similarly, the building material and construction methods can impact premiums because they affect the home’s vulnerability to fire or other covered hazards.
• Attractive nuisances: Homeowners insurance includes liability coverage, which covers expenses when someone is injured on your property. As a result, trampolines, pools and other potentially dangerous features could increase your premiums.
• Your previous claims: Filing an insurance claim can raise your rates when you renew, lead to higher premiums on a new policy or even make it difficult to get a new policy.
• Amount of coverage: Your coverage amount, the types of coverage you purchase, add-on policies and policy modifications directly impact your premiums.
• The policy’s deductible: A lower deductible means your insurance will pay out more, but it will also lead to higher premiums.

Other factors can also play into how much you’ll pay in premiums, such as your marital status and whether you have a certain breed of dog. You may also want to buy separate flood, sinkhole or earthquake coverage, or an add-on for these coverages, as your homeowners insurance policy might not automatically include this coverage.

How to Save Money on Home Insurance

Regardless of your credit, you can explore different ways to lower your premiums and save money:

• Look for discounts: Insurers may offer discounts if you install different types of safety and security equipment, such as smoke detectors, deadbolts and burglar alarms.
• Avoid filing small claims: Consider whether the reimbursement you get from a small claim is worth it if your premiums increase. Sometimes, it might be best to pay out of pocket.
• Increase your deductible: Higher deductibles lead to lower premiums, and this might be a good option if you don’t plan on filing small claims anyway.
• Bundle policies: Purchasing multiple types of insurance from the same company can also lead to lower premiums. Bundling auto and homeowners insurance is a common option.

The Bottom Line

Many home insurance companies can check your credit and consider your credit-based insurance scores when determining your eligibility and premiums. These credit scores differ from the credit scores that lenders use: You can check your FICO® Score from Experian for free. But they both largely rely on what’s in your credit report. Focusing on improving your credit history could help you save money on insurance and loans or credit cards.

No matter your credit score, regularly shopping for insurance and comparing quotes might help you save money without affecting your credit. You can get insurance quotes online, from an agent, from a broker or using comparison tools.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you find the best rates and coverage for your home insurance needs.

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