It may surprise most people to find out that home insurance carriers use your credit score to decide what your premium is going to be for your policy. A majority of us feel this is only the case when we’re getting a loan or applying for a new credit card. A high percentage of insurance companies per FICO are checking out credit-based scoring as they are calculating the rates for insurance premiums. Using their scores in this way wasn’t something that homeowners were necessarily aware of.
What one insurance company may deem as a good score could be fair to another. It varies from provider to provider and how they’re handled varies as well. The carriers started using this method back in the 1990’s as they felt there was a correlation between the score level and the policyholder’s risk factor. Insurers have analyzed the data and found out that the low credit scores indicate a higher likelihood that a customer might file a claim or fail to pay the premium on time.
Getting Home Insurance With Bad Credit
People with bad credit are considered to be high-risk and typically pay significantly higher rates than those with higher scores (approximately 90% more for homeowner’s insurance per Insurance Journal reports) as did people who had merely average credit (at approximately 30% more).
If your credit report causes you to receive a home insurance denial or inflates your rates, The Fair Credit Reporting Act Adverse Action Notification requires that insurers let consumers know. If you think you are paying well above what typically is being charged for your homeowners insurance plan, you should definitely speak with your agent.
It’s very important to understand your particular state’s laws with insurers using the credit reports when they calculate insurance premiums. It isn’t allowed everywhere in the country. It is illegal for carriers to use your score in order to elevate your home coverage in both Hawaii and Maryland.
There may be other states that allow the system to be used but they don’t give them permission to drop a policyholder or deny coverage completely. And in Washington D.C. there is a rule that policyholders have the right to have their premiums recalculated every year based on new credit scores and receive new rates based on those scores, according to D.C. Department of Insurance.
Improving Your Credit Score
You may be forced to pay inflated premiums for a while until you’re able to work on elevating your poor credit rating which takes considerable time. You can begin by reviewing your credit history for any signs of identity theft or mistakes that may be included in the report and then monitor it on a consistent and regular basis. Whenever you see something that doesn’t register with you, report it to all three of the credit bureaus including any evidence that will document for them that the item is not legitimate. A financial advisor is a really good investment in order to help put you on a tight monthly budget and get the bills that you have in order and under control.
It’s going to take time and a lot of work on your part, but until then you will either need to be insured through a high-risk insurer in order to have homeowner’s insurance at all or you will pay excessively high rates. Actually, either way, you will be paying excessively high rates. There is a bright side. Even though you have to pay more, you’ll have insurance–your assets are protected and safe from any type of devastation that may come along. It’s better to have to pay a crazy amount for insurance than to be left financially devastated from a complete loss of all that you own after a catastrophic event because you had no insurance at all. Things can always be worse.