Did you know that your credit score affects the premiums on your homeowner's insurance?
Just when you thought that your credit only affected major buying decisions such as a home or a car, you could be paying much higher premiums for both your homeowner's and auto insurance if you have a poor "insurance score". An insurance score is a rating system that insurance companies use. It is based on several "credit related" factors such as:
* Payment history and delinquencies
* Bankruptcy, foreclosure, and collection activity
* Length of credit history
* Debt ratio - Amount of debt in relation to credit limits
* Types of credit in use
* Number of new credit applications
Studies conducted by the insurance industry and several independent sources show that there is a distinct correlation between a person's credit history and the likelihood that a person will file an insurance claim.
There are hundreds of factors that insurance companies will take into account when determining your premiums. Insurance companies will consider your claims history, home (or auto) safety features, geographic area, deductibles, and insurance limits to name just a few.
Is it fair or unfair? Could it be that people with immaculate credit are more likely to take better care of their homes? Are they more likely to check their sump pump or repair their roof? Are they less risky by nature and always follow the rules? Does it indicate they have enough cash on hand that might make them think twice before making a claim?
To boost your credit score:
* Check your credit. Make sure there aren't any errors or omissions.
* Do not apply for new credit of any kind unless you have no credit. No credit is the same as bad credit.
* Do not close credit card accounts or consolidate your debt. This will raise your debt ratio.
* Do not max out any credit cards. Try to keep the balances to
* Stay current on existing accounts and continue to use your credit as normal.
A breakdown of your credit score: 35% Credit History, 30% Debt Ratio, 15% Credit Length, 10% Credit Type, 10% Inquiries
One last thought, if it has been a while since you applied for homeowner's or auto insurance (and you have excellent credit or better credit than when you first applied), it may be worth a call to your agent to rerun a quote for you. It could save you a bundle!
~Lisa
Contact Scott Loper, Associate Broker, Realtor®, RE/MAX Realty Group at 215-513-1333 for help buying or selling a home in Lansdale, Harleysville, Hatfield, Souderton, Skippack, Collegeville, North Wales and the surrounding areas of Montgomery County Pennsylvania. To Search for Homes For Sale in Montgomery County Click Here.
What Does Your Credit Score Have To Do With Homeowner's Insurance? Copyright © 2010, The Scott Loper Team, All rights reserved.
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The Scott Loper Team
Scott Loper - Associate Broker
Lisa Loper - Sales Associate
Gina Wherry - Sales Associate
RE/MAX Realty Group
439 Main Street
Harleysville, PA 19438
Ph: 215-256-1200 x-213
Several insurance companies have been using credit scores for a few years now. Someone late payments, collection accounts, etc will most likely not have much in the way of cash reserves. This will often make them more likely to file a claim should a damage issue arise.
Lisa - I'm not sure it's that people with good credit take better care of their homes. I think it's more like this: People who don't pay credit card bills often rationalize it by saying, "Those banks make too much money any way." They then take that same mindset to their insurance companies. What's a fake or inflated claim or two when the insurance companies are making so much money?
It's this "Stick it to the big guy" mentality that was one of the reasons for our economic tail spin.
Rodney, The amount of cash reserves does seem likely to impact whether or not a person will file a smaller claim, and I suppose that adds up and erodes at the profitability of the insurance company.
Richard, I hate the stick it to the big guy mentality. But you're right, some people consider themselves victims and justify cheating so they can get ahead.