Homeowner’s Insurance and Your Credit Score

Homeowner’s insurance is almost always a requirement. Even if you happen to live somewhere that does not require you to take out a policy, it would greatly benefit you to do so. Your mortgage lender will want to protect the investment almost as much as you, and a homeowner’s policy will do just that. You may be wondering, however, just how your credit score will be affected by taking out your policy. Just as lenders base your loan interest on your credit score, insurance companies also use it to determine how much you will be charged for premiums.

Your credit score is a measurement of your ability to handle borrowed money. The more credit cards you have, the harder it can be to pay them all back. If you are able to pay more than the minimum payment on time, your credit score will remain excellent. If, on the other hand, you have difficulty making payments, your score will suffer.

The most common type of credit score used is the FICO, or Fair Isaac and Company Score. This score is based on five factors. They are: your payment history, the total of all current credit balances, the amount of time you’ve had credit accounts, whether or not you have recently opened any new accounts, and the credit types you use. So how does all this tie into your insurance?

Credit companies use your score to help determine premiums. It’s called risk management. Insurance companies want to know how much of a risk you will pose to them in terms of paying your insurance premiums. They want to make sure you will be able to afford the homeowner’s policy you are taking out. They try to estimate the number of claims their customers will file each year, and charge premiums based on this average that will be sufficient enough to cover liability for at least that amount.

Studies have shown people who have lower credit scores are much more likely to file an insurance claim than those whose scores are average or high. Because these clients are riskier to insure, the insurance companies develop their own rating numbers. These numbers are based on the credit scores of customers. Customers with high scores are offered the best terms and rates while customers with low scores may not receive the same great terms and will be required to pay more.

Before buying a home, you will be able to check your credit score. Your mortgage company can usually do this for you as your credit score will also determine the amount of money you receive for a loan. If you find your score is lower than you would prefer, you may wish to pay off some of or perhaps even all of your creditors before buying a house and taking out a homeowner’s insurance policy.After all, the insurance is there to help you and the better the coverage, the safer you’ll be in the long run.

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