Does Your Credit Score Affect Your Homeowners Insurance Cost
+Carrie Van Brunt-Wiley Editor of the HomeInsurance.com blog provides tips for consumers on a wide variety of topics ranging from home maintenance to insurance shopping. Below is a great article by her.
Your credit score and your insurance payments- what’s the connection?
You’re likely not surprised when your loan officer asks for your social security number- a thorough credit check is standard when applying for a loan. However, many consumers are caught off-guard when a homeowners insurance agent asks for their social security number. It’s widely debated, but quite commonly practiced- for an insurance carrier to use a customer’s credit score to determine their insurance premiums.
What does your credit score really mean to your potential insurance carrier?
While many businesses will use a consumer’s credit score to determine eligibility for a line of credit or to discern whether a deposit should be held for an advance of services, insurance companies actually perform a different type of credit inquiry that they use for a very different reason.
A “Soft” Credit Check
First and foremost, it’s important to know that when an insurance company runs your credit they are actually performing what is called a “soft” credit check which accesses only your credit score and is not reflected as an inquiry on your credit report. As you probably can surmise, this is different from a “hard” credit check that a lender, for example, may run which does show up on your credit report as an inquiry.
Since credit inquiries from “hard” credit checks can hurt your overall score it’s good to limit these types of credit checks when shopping for a mortgage, for example. However, since insurance carriers only perform a “soft” credit check you can feel free to shop for multiple insurance quotes without worrying about hurting your credit rating.
What they use it for
Here’s where a lot of confusion, and sometimes even frustration, can set in from a consumer’s perspective. Once an insurance company has your credit score, they use it (along with many other factors about you and your home, car, etc.) to assign you an “insurance score”. This insurance score reflects your potential risk to the insurer.
The insurance carrier then takes your risk potential and calculates your premiums. The more risk you pose, the higher your premiums will most likely be. This is where the real question comes in:
What does poor credit history have to do with my potential to file a claim?
If you’re asking this question, you’re not alone.
There is much debate over the use of credit scoring as a way to determine risk, and therefore assign rates to insurance consumers. However, insurance companies defend the practice saying that studies have shown a direct correlation between a person’s credit score and their likelihood to file a claim. Therefore, consumers with a lower credit score often pay higher rates for insurance.
Whether you agree with the practice or not, qualifying for better insurance premiums is just one other way that you can save money by keeping a good credit rating.
This article originally posted by Keeping Current Matters at kcmblog.com