Credit Scores May Hurt Homeowners Insurance Customers

Posted January 14th, 2010
by HomeownersInsurance.org Staff (no comments)

creditYou might not know it, but your low credit score impacts your life in a number of ways, beyond just affecting your interest rate or your ability to get credit. Your credit score might even have an impact on how much you’ll pay for your homeowners insurance. Even phone companies are getting into the act, according to the Federal Trade Commission, as more and more companies seek to determine how much risk is involved in having you as a customer.

What is your credit score?

It’s important, first of all, to get a handle on what your credit score really is. Every time you pay a bill, use a credit card, or apply for a loan, that action can affect your credit score. Your credit score is taken by looking at your credit report and, using a complex statistical analysis, comparing your credit history with the history of other customers like you. A credit score awards a certain number of points for each factor that goes into your credit report, and your overall total of those points is your credit score.

How do insurance companies use a credit score?

Some homeowners insurance companies will look at your credit report or credit score, along with other information about you, to help them predict whether it’s likely you’ll file an insurance claim and, if you do file a claim, how much it will be. That will then help the company to determine whether they can insure you, how much your insurance premiums will be and how much coverage they will let you have.

Getting a handle on your credit score

Under federal law, you’re allowed to get a free copy of your credit report from each of the three consumer credit reporting companies once a year. There is even a website, at www.annualcreditreport.com, where you can request the credit report.

While you’re allowed a free copy of your credit report, you aren’t entitled to your credit score for free. For that, you’ll have to pay extra. Each of the three consumer credit reporting companies offers your credit score, as well, and it is usually for a fee of right around $8.

How to use your credit score

There are a couple of ways in which having both your credit report and your credit score can be useful. First off, you should get them before you apply for homeowners insurance. This will help you know where you’re starting from in terms of how the insurance company sees your creditworthiness and your risk.

You can also use your credit report to identify potential errors and get them corrected. In addition, you can look at specific items in your credit report and identify potential areas of improvement, and be able to raise your overall credit score.

Photo via Andres Rueda

Categories: Insurance Tips

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