Credit scores play a major role in determining several facets of your financial future, potentially including how much your home insurance premium is going to cost. While this is not the case in all states, most states allow insurance companies to use credit scores for all types of insurance applications, including home insurance.
A low credit score is usually a good reason to be denied a risky financial endeavor, such as opening a new credit card or requesting a bank loan. Home insurance, on the other hand, is usually paid in full on an annual basis and there is little financial risk involved, so the role of the credit score can seem unfair to quite a lot of people.
Read on to learn all about homeowners insurance and credit scores and if you want to find the very best home insurance rates no matter what your credit score is then just enter your zip above for free insurance quotes!
Credit Scores and Home Insurance Risk
As mentioned above, home insurance typically gets paid once a year in full. Most people have a mortgage with an escrow account, so the money is budgeted and set aside automatically to ensure that the home insurance is paid on time. If the home insurance is not paid, then there is simply no home insurance policy, which means if you have a catastrophe of sorts you will have no insurance to cover it. The insurance company is not obligated to pay you for a policy that terminated due to lack of payment and therefore has no risk associated with it.
All home insurance policies have a deductible, usually ranging from $500 to $1,000. A deductible is the amount the home owner has to pay out of pocket before the insurance company starts to pay on a claim. Since the insurance company does not have to pay anything until the policy procedures have been met, they once again have no financial risk based on the homeowners credit score.
There is always a potential risk of fraud, which leaves an insurance company financially at risk if the fraud remains undetected. Having a low credit score does not indicate foul intent or make a person criminally-minded, yet statistics show that low income people or people with low credit scores (which is usually a sign of financial struggle), are more likely to break the law in order to gain some financial relief or freedom.
For example, if two very similar people with similar backgrounds, similar income, and similar lifestyles, apply for the same home insurance coverage for similar houses in similar neighborhoods, their premiums may differ from each other largely in part due to a difference in credit scores. The person with the higher credit score is considered to be low risk, and therefore receives a lower premium. The person with the lower credit score may be seen as a higher risk and may get a higher premium as a result.
Although it is very unlikely that the person with the lower score will commit arson to just to collect the insurance, statistics say that he is a more likely candidate than the person with the higher credit score. They also see it as more likely that the person with the low score will default on the loan. Insurance companies prefer to take no financial risks and offer higher premiums to people with low credit scores.
Raise Your Credit to Reduce Your Home Insurance Rates
As soon as you think about buying a home, one of your first concerns is going to be what your credit report looks like. Your credit score and overall credit history is going to have an impact on your mortgage interest rate as well as your home insurance rate. If your credit report is excellent you will have reduced rates, but if your credit score is low, your rates can be quite a bit higher. To keep your rates low it is a good idea to boost your credit score as much as possible.
The first step to take in order to raise your credit score is to get a copy of your credit report. You are entitled to a free credit report every year. You can pay to get your overall FICO score or you can contact the three credit reporting companies individually for a free annual report. They are: Experian, TransUnion and Equifax.
By taking advantage of your free credit report you will be able to review it for accuracy as well as any potential identity theft. The next step is to try to pay off any lingering debts on your credit report and also work at reducing your current debt. The fastest way to tackle debt reduction with a boost in credit score is by paying down the credit cards that have the smallest ratio of credit limit to credit debt. This ratio is used as one of the elements in calculating your credit score, so the larger the ratio you have on each card, the better your score will be.
Finding Home Insurance if You Have a Low Credit Score
Having a low credit score does not mean you are unable to obtain home insurance. What it does mean, however, is that your home insurance rate may be higher than you would hope. If you have a home, home insurance coverage is unavoidable. However, it is possible to lower your premium.
In addition to trying to raise your credit score before applying for home insurance, there are other steps you can take to assure you get the lowest possible premium for the coverage you need. Start by getting basic quotes for sufficient coverage. Do not bother getting quotes for less coverage than you should have because it will not be beneficial to you. Instead, focus on realistic needs and then see what you can do to lower the rate. One easy way to reduce your premium instantly is to raise your deductible. Most insurance companies also offer a variety of savings through multiple policy discounts and home security features.
Since most states allow credit scores to be used for determining home insurance rates, your credit score will be most likely be used in determining your premium. If this is the case, working on raising your credit score in advance can be advantageous. Regardless of your credit score, getting the lowest rate for quality coverage is always optimal.
Finding Cheap Home Insurance w/ Good or Bad Credit
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