If you thought that your credit score only affected your borrowing capacity and future credit contracts, then it might be time to rethink that misconception. In today’s fast changing financial market structure, insurance companies too are keeping an eye on your credit score as highlighted when we discussed auto insurance. Simply put, the home insurance premiums that you pay could be directly related to your credit score or credit report.
Consumer Ratings For Home Owners Insurance
Although it is extremely controversial, but an increasing number of home insurance companies are taking individual credit scores into consideration before deciding on whether or not to issue a home insurance policy contract in the first place. In addition, your home owners insurance premiums are indirectly proportional to your credit score. Stated plainly, the lower your FICO score the higher the homeowner’s insurance premiums and vice versa. In addition to this, factors such as age of the property, prior losses and type of construction are also taken into account.
In order to create and factor in credit score to suit the home insurance ratings, one of the following is used
- Fair, Isaacs & Co, Three digit credit score OR
- A home insurance score is ordered via FICO. OR
- Homeowner’s Insurance companies infuse their own underwriting criteria into the evaluation and take into account the FICO credit or insurance score.
It might be noteworthy that unlike your regular FICO score which is concerned with how much of new credit you can take on, home insurance policy scores on the other hand are concerned with your debt management capacity. Hence it is concerned with the time factor of how long you have been successfully managing your debt.
Home Insure Options : What Can Consumers Do
It should be mentioned that once your home insure application is declined, it does not mean that it is the end of the road. There are home insurance options available to consumers in these circumstances. A few possible alternatives are listed below:
- Obtain Your Credit Report: Get your credit report and check for any credit report errors that might have crept in. If you find these take them up with the appropriate credit bureau and re-approach your home insurance company.
- Ask for Full Disclosure: Speak to your home insurance policy agent and ask them to advise you as to which tier you fall under. This will give you a fair idea of the kind of premium you might have to pay. An agent is required to give you full disclosure if asked these questions.
- Shop Around: Not all homeowner’s insurance companies out there use the credit report scoring system. There are companies which do not pay attention to your credit report when deciding your home insurance premiums. It is about finding the right home insurance policy company to suit your needs.
- Pay Down Short Term Credit: If you find yourself in a situation where you have no option then it might be a good idea to start paying off your credit card debt and small and short term loans to boost your credit score. Once you have done this reapproach your home insurance company and request them to reassess your home insurance application.
Homeowner’s insurance is extremely important in this day and age. Hence it is extremely essential that consumers make the right choice with their home insurance policy. Bear in mind that not all home insurance companies consider credit scores while deciding on premiums or applications. It is all about finding the right insurer to fit your needs.
References:
- Guess Who’s Looking at Your Credit Report – Smart Money, The Wall Street Journal
- How credit scores affect insurance rates – Bankrate