Credit and Home Insurance

May 11, 2017 by

range of credit scores“My credit score doesn’t matter. I don’t plan to borrow any money.”

Wrong!

Credit scores affect a lot more than the likelihood your loan or credit card application will be approved and what APR you’ll get. For example:

  • Many employers ask for permission to run a credit check on job applicants. You could legally be turned down for a job solely because of poor credit (or because you decline to give the employer permission to run a credit check on you).
  • Almost all landlords review tenant applicants’ credit ratings. If you don’t measure up, you may find that your only options for a rental home or apartment are far less desirable than you would like.
  • Might you need in the future to have utilities hooked up? When you last relocated and called the local electric utility to set up service, it likely ran a credit check on you. If your credit score failed to meet the utility’s standards for establishing credit, you would have been asked to make a hefty deposit.
  • How often does reality turn out differently than our plans? That happens to me just about every day! You may not be planning to borrow money, but your car may konk out tomorrow, or an unexpected opportunity may come along for which you would need to borrow money. Bad credit limits your options.
  • Many retailers and car dealers offer credit-worthy consumers cheap or even zero rate financing on large purchases. If your credit score doesn’t meet the business’ minimum qualification standard, you would not be eligible for these sorts of money-saving deals.

Credit Rating and Home Insurance Premiums

Do you own your home? If so, when you applied for home insurance, more than likely you gave permission for a credit check, though you may not have noticed the consent statement in the application’s fine print. Insurers consider credit history to be an indicator of your insurance risk: the poorer your credit score, the higher your premium. Or you might be turned down for insurance altogether!

How much higher may your insurance premium be if you have poor credit?

According to a report commissioned by InsuranceQuotes.com, people with poor credit pay, on average, 114% more for home insurance compared to people with excellent credit. That’s more than double.

And people with fair credit pay, on average, 36% more for home insurance than do those with excellent credit.

Home Insurers Relying Even More on Credit Rating

And check this out: the same report says that insurers are relying even more on homeowners’ credit rating in setting premiums. The worse your credit, the more you’ll pay—and the gap between poor and excellent credit is growing fast.

As noted, homeowners with poor credit today pay 114% more for home insurance than those with excellent credit. But in 2015 the figure was 100%. In 2014 it was 91%.

Credit Rating vs. Home Insurance Premium Varies Greatly by State

By how much insurers penalize those with poor credit varies tremendously by state, and so does the penalty’s rate of change over the past three years.

For example, South Dakota homeowners with poor credit paid 100% more in 2014 for home insurance compared to those with excellent credit. But now those with bad credit pay a whopping 288% more—nearly quadruple!

In Kentucky, homeowners with fair credit paid in 2014 an average of 34% more for home insurance than did those with excellent credit. Today they pay 57% more.

Have a look at the InsuranceQuotes.com report for data on your state.

You can argue that this trend unfairly penalizes those with less-than-excellent credit if you want, but that won’t change reality. Better to channel your energy into something constructive: work on optimizing your credit score!

Digiprove sealCopyright secured by Digiprove © 2017 Kurt Fischer
All original content on these pages is fingerprinted and certified by Digiprove