Your credit score is one of the major factors that help insurance companies determine your insurance premium. As a general rule of thumb, the lower your credit score, the higher your premiums. It’s unlikely that an insurance company won’t sell a policy to you, but if your score is low enough, they do reserve the right to in some cases.
Lower credit scores can make it difficult to purchase insurance as premiums – depending on your score – can be nearly 3 times the amount someone else would pay. This means that someone with a credit score of 800 might pay $600 in premiums, but someone with a credit score of 375 might pay as much as $2,000 in premiums. Your credit score does affect your home insurance and can hurt.
Along with determining your insurance premiums, your credit score is used by companies to determine your insurance score. Many factors go into determining your insurance score and the better your insurance score, the better off you are in your insurance company’s eyes. Keeping your credit score high can allow for better opportunities and options in the insurance market. If you have poor credit, your insurance company may take that as a chance to require more from you to prove your worth for them.
What is an insurance score?
Your insurance score or credit-based insurance (CBI) is what describes your overall financial stability and ability to pay back your loans. Your insurance score is what is used by your insurance company to determine the rates you pay for your policy. The better your insurance score is, the better your premiums will be. There’s a list of factors that go into determining what your insurance score is and it varies from company to company.
A general list that most insurance companies use is as follows:
- Credit history – If you have a bad history of credit and have had a low credit score for a long time, your insurance company will raise your rates. If you have recently dropped into poor credit, your insurance company may take this into consideration and keep an eye on your credit.
- Amount of credit accounts – The more credit account you have, the worse your rates will be. This is a common trend among Americans, getting more credit accounts seems like an easy way to earn more discounts. It’s also an easy way to miss payments with more accounts to keep track of.
- Credit usage – If you use your credit less often and accumulate less per month, you will be given a lower insurance rate. The more you use your credit accounts, the more likely you are to overspend and be left with a low credit score.
- Late payments – By paying your credit off late, you show your insurance company that you will be late to pay your premiums. Many insurance companies use your credit history to determine how likely you are to pay them back on time so if you have a record of late payments, your insurance company will be worried about their return.
These factors play into your credit score and that will affect your insurance score. The better your credit, the better your insurance score. A better insurance score means lower insurance rates. The best way to keep your insurance score in check is to raise your credit score which is easier said than done.
Insurance companies often use credit checks to gather information about your credit score. A credit check is what allows them to see your credit history, how quickly you pay off loans, and how much debt you may have. Credit checks help your insurance company determine how much your insurance rates should be. These can negatively impact your insurance rates, but they will have no effect on your credit score itself.
How to get Covered with bad credit
Bad credit score will impact most people when it comes to getting home insurance. The worse off your credit is, the higher your insurance rates will be in most cases. However, you will rarely be denied by an insurance company for a policy. Most insurance companies take credit score into consideration when offering you a policy but very few will refuse to take you as a client.
Raising your credit score can be difficult but is the best option for those looking to get a good policy for an inexpensive premium. If you keep your home up to date with security measures and safety percussion and don’t file any insurance claims, you may be able to find a decent policy even with a lower credit score. If your credit score is what is making your insurance rates go up, most states require the insurance company to notify you.
Some states like Maryland, California, and Massachusetts do not allow insurance companies to look at your credit scores. If you live in one of these states, you do not need to worry about your credit score affecting your insurance rates.