Homeowners Insurance and Your Credit Score
These days, homeowners’ insurance is a must for all home purchases. This insurance offers coverage which will protect homeowners against potential losses. Most people nowadays purchase houses with mortgage loans. Mortgage lenders give out loans based on credit scores of the loaners. Insurance companies too, charge premiums based on that score.
Credit score is a system that scores you on how well your ability is, to repay owed obligations. It is used by the banks to decide whether you should get a loan or not. Commonly used kinds of credit scores include Company score and FICO or Fair Isaac. Credit score is based on five factors namely the sum of current credit balances, history of payments, whether it is paid on time or not, any opening of new credit accounts as of lately, the duration of having credit accounts and the kinds of credit used.
As insurance companies are dealing with risk management, they look at the credit scores to assess who are the kind of risky clients. Credit scores are used to estimate just how many claims would their client file each year averagely and then charge them premiums that will be enough to cover the liabilities.
Based on several studies, those with a lower credit score have a higher tendency to file for claims. These customers are “risk clients”. Hence, with higher credit score, the best rate would be offered, as these customers would be financially responsible to pay up on time and those of a lower score would be expected to pay more for their premium.
So, in order to get a better rate for homeowners premiums it would be wise to raise credit score by having a good payment history. However, if you have a less than perfect credit score, try asking for a discount for safety and security features installed in your home as these could all lower the risk of potential losses to both the homeowner and the insurance company.
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