Poor Credit History Can Affect NC Homeowner’s Insurance Rates

18 May
Credit score and your homeowners insurance rates

Reviewing your credit score is just one more risk factor that insurers consider when setting a premium rate.

According to a report from Insurancequotes.com, your credit history may have a much bigger impact on your homeowners insurance rates than previously thought, and the gap between a poor and excellent credit rating seems to be growing.

In fact, if you have a poor credit rating, on average, your premium will be more than double the rate of a homeowner who has excellent credit, the exact increase is 114 percent. This number was 100 percent in 2015 and 92 percent in 2014.

Homeowners who have “fair” or “median” credit ratings pay an average of 36% more than homeowners with an excellent credit rating.

The study was done by Quadrant Information Services, who used premium data from six major insurance companies. The data is based on premiums quoted for a 45-year-old homeowner who has an 1800 square foot, two-story single-family home that was built in 1976.

Policy parameters were $140,000 in dwelling coverage $300,000 in liability coverage with a $500 deductible. This study used three different tiers of credit-based insurance scores, excellent, fair and poor.

What is an Insurance Score?

Insurance scores are similar to a credit score but they are calculated a bit differently. The information in your credit report is taken into account but most insurance companies use a proprietary formula so your insurance score can very between insurers.

The premium difference between poor credit ratings and excellent credit ratings will also vary by state. This is due to the fact that state regulators are responsible for setting rules related to insurance. Some states allow insurance companies to weigh credit scores more heavily while others limit the impact a credit score have on your insurance premium. A few states ban the use of credit scores when setting premiums.

According to the report the states with the biggest premium increases between excellent and poor credit ratings are South Dakota, Arizona, Oklahoma, Nevada and Oregon rounding out the top five.

Luckily, the residents of North Carolina top the list when it comes to the smallest increases with Florida, New York, and Wyoming filling out the rest of the list.

Only three states, California, Maryland and Massachusetts ban the use of insurance credit scores. 

Why Credit Scores Matter

Insurance companies love statistics and statistics show that homeowners with poor credit ratings tend to file more claims. Basically, it is just one more risk factor that insurers consider when setting a premium rate.

Insurance companies like to point out that in states where they use a homeowners credit history to set rates, the process has been reviewed and approved by state regulators to ensure that credit scores are not being used in an unfair or discriminatory way. Unfortunately, if you have a poor credit rating you will be paying more for homeowners insurance in most states.

A Few Tips

Here are a few tips, related to credit scores that can help keep your premiums affordable:

Improve Your Score: Improving your credit score can have a major impact on your premium. According to industry experts, consumers can maintain a good credit score and improve a poor score by paying the bills on time, limiting the number of credit cards they carry and keeping all credit card balances low.

Review your credit reports and if you discover any errors request they be fixed immediately. Periodically review your score and once it has started to improve ask your insurance company to reevaluate your premium.

Shop Your Coverage: One of the best ways to lower your insurance cost is to shop your coverage on a regular basis. Insurance companies rate risk differently and have proprietary programs to evaluate credit histories, which can result in dramatic differences in premiums. Industry experts recommend shopping your coverage on a yearly basis and to make sure you compare multiple quotes. At HomeInsuranceKing.com, we can easily compare multiple home insurance quotes to help save you time and money. We will shop the most competitive companies in your area.

Discounts: All insurance companies offer discounts and they can have a dramatic impact on your premium. Ask your agent to do a discount review to make sure you’re getting all discounts that you are qualified to receive.

Raise Your Deductible: This is another great way to lower your premium, as long as you can afford it. Raising your deductible will result in a lower premium but it is important to make sure you can afford your deductible in the event you have to make a claim.

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