Many factors determine the recurring cost of your homeowner’s insurance, including the amount of debt you have and whether you tend to settle your bills on time. A low credit score will make it challenging to secure a loan if you have a lot of debt.
Your financial history can affect insurance providers; they will calculate a credit-based insurance score, or CBI, to evaluate your fitness as a potential client.
If you manage your debt responsibly and pay your bills on time, it will give you a better credit rating. A better credit rating means lower rates and fees when paying for homeowner’s insurance.
Insurance Ratings Based on Credit
Insurance firms examine your financial history to determine whether you are “low-risk” or “high-risk” to cover; low rates are associated with reduced risk. Insurers use your CBI (or credit-based insurance score) to calculate your risk level and, consequently, your home insurance premiums.
Even though each insurance company’s methodology is unique, these are the areas they commonly evaluate when they review your CBI:
- Do you have any overdue debts that you need to pay?
- Which credit cards are you using?
- Do you make a lot of credit applications?
- How long have you had a history of using credit cards?
- Do you have a lot of late fees?
For example, owing $150,000 on a credit card affects your rates more than owing $150,000 on a mortgage because of the varied weights given to different types of loans.
CBI Scores and Insurance Companies
If an insurer finds that an insurance policyholder has a high CBI score and is likely to file a claim, they utilize that information to calculate premiums. For example, if a homeowner takes care of their property, they are less likely to submit a claim in the event of a storm.
Generally, your insurance prices are lower if your credit history is excellent.
Is Homeowners Insurance Affected by a Person’s Credit Score?
Your credit score will influence your insurance premiums if you reside in a state that allows insurance companies to use CBI to establish prices. Every insurer utilizes various components to produce premiums.
The following are a few quick facts regarding CBI:
- Credit scores range from as low as 300 to as high as 850.
- Between 600 to 750 is considered a satisfactory result.
- Using the insurer’s CBI model, each policyholder receives a unique score.
- You may save up to +20% on your premiums with excellent grades.
- You might double premiums if you score poorly (below 570).
For example, if you’ve maintained good credit but just had a death in the family that lowered your credit score, your insurance company may be more tolerant if you inform them of your situation.
Can People with Bad Credit Get Affordable Insurance?
If you have less-than-perfect credit and reside in a state where insurers can set rates based on your credit history, you may still be able to get home insurance despite your financial situation. It’s crucial to remember that premiums for high-risk policyholders can be significantly higher, and they may be denied coverage in certain conditions.
You can’t be rejected insurance because of bad credit alone, but if you have other “red flags” like an older property or a history of claims, you may be denied.
Even if your credit is less than perfect, you may be eligible for discounts if you show that you take care of your property.This is why improving it over time might help you save money on your insurance policy.
If you’re having challenges getting insurance because of poor credit, your state’s Fair Access to Insurance Requirements (FAIR) Plan may be your last choice. Even if you qualify for lower rates, remember that your coverage may be less comprehensive and costly.
You can summarize the impact of your credit history in one sentence: the better your credit, the better your rates. Many insurance companies still provide services to high-risk policyholders, although they are likely to charge higher rates.
You must know the information that insurance companies use to calculate your premiums. Knowing which factors affect your credit score may help you find ways to improve it.
If you are looking for the best home insurance in Colorado, we can help. 5280 Insurance has a professional and experienced team of Protection Insurance Advisors to assist you. Call us now to get started with dependable protection.