I have a Credit Score?
Homeowners insurance is a requirement for almost any home purchase these days. Mortgage lenders want to protect their investment as much as the homebuyer does. And just as lenders determine your loan interest rate and terms largely on your credit score, insurance companies also use your score to determine how much to charge you for premiums.
What is a Credit Score?
A credit score is a measurement of your ability to responsibly deal with borrowed money. The most commonly used type of score is the FICO or Fair Isaac and Company score. This is based on five factors: your history of timely or untimely payments, the total of your current credit balances, how long you have had credit accounts, if you have opened any new credit accounts recently, and what types of credit you use.
How is My Score Used?
It’s all about risk management. Homeowner’s insurance companies are in the business of risk. They try to estimate how many claims their customers will file each year on average and then charge premiums that are sufficient to cover at least that amount of liability. Studies have shown however, that those with lower credit scores (typically those who are less financially responsible) are much more likely to file an insurance claim. These are riskier clients to insure. So insurance companies develop their own rating numbers for customers based on their credit scores and those with high scores are offered the best rates and terms while those with lower scores can expect to pay more.
Best Rates and Terms on My Insurance?
Start by asking the insurance company what kind of scoring system they use. Ask if you qualify for the best rates and terms and if not, find out what you can do to qualify. Typically, anything that improves your credit score will also improve your insurance costs. This includes things like making all your payments on time and lowering or maintaining low balances on your credit cards.
And even as you work to better your score, try asking several different insurers for rate quotes. Each company will use slightly different factors to determine your price, so shopping around can insure that you find the best available price no matter what your credit score.