Credit Infocenter

Are You Paying More for Home Insurance Because of Bad Credit?

July 26th, 2016 · No Comments · Insurance

by Kristy Welsh

(Last Updated On: November 10, 2017)

are you paying more for home insurance because of bad creditIf your state allows the practice, it is possible that your credit helped determine what you’re paying for homeowners or renters insurance. So if your credit is in bad shape, it’s possible your premiums are higher than they would be if you had better credit.

How Home Insurance Scores Are Calculated

Though they may rely on your credit in the underwriting process, insurers are not using the same scores used by creditors. Instead, a special home insurance score is created for this purpose.

A consumer alert from the National Association of Insurance Commissioners says FICO’s credit-based insurance score is based on the following percentages:

  • Payment history – 40 percent
  • Outstanding debt – 30 percent
  • Length of credit history – 15 percent
  • Recent applications for new credit or “hard inquiries” – 10 percent
  • Credit mix – 5 percent

That said, FICO isn’t the only one creating home insurance scores. Insurance companies may rely on other sources, be it a third-party company like LexisNexis or the insurance company’s own internal scoring model.

Other Factors That Determine What You Pay

As much as a home insurance score may influence your premium, it’s not the only thing that matters.

Your premium may be lower if you:

  • Live close to a fire station or a fire hydrant
  • Live in a low-crime neighborhood
  • Have an alarm system installed your home

Your premium may be higher if you:

  • Live in a high-crime neighborhood
  • Live an area prone to natural disasters
  • Have filed previous claims

How to Improve Your Home Insurance Score

First, contact your state insurance department to find out if your state allows credit-based scores to be used in the home insurance underwriting process. If so, the best way to improve your home insurance score is the same way to improve your regular credit score. Our credit management cheat sheet will get you on the right track.

Don’t Forget Your Auto Insurance

Your credit may be affecting that, too.

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