May 6th, 2013

The Importance of Home Insurance Scores

57 Comments | Twitter | |

 

**Today’s guest post is contributed by Carrie and Shannon.**

A big part of financial responsibility is maintaining adequate insurance coverage. Premiums act as a safeguard for your assets, and a little money spent now might pay off big time in the future. How much you pay now, though, will vary. You probably don’t have the same premiums as your brother-in-law or neighbor. How can you predict rates then? Credit Karma already provides your auto insurance score and now provides your home insurance score as well.

What’s a home insurance score?

Insurance scores are similar to credit scores in that both are generated by an algorithm that weighs information in your credit report. Your credit score evaluates your payment history, the amount you owe, how long you’ve had credit, and the type of credit you use to predict the likelihood that you’ll become delinquent on your credit obligations over the next two years.

Insurers use the same information, though it is weighted differently, to help predict your risk of filing a claim. Your home insurance score is used, along with other factors such as the size and value of your home, where you live, your claims history, and other factors to set your homeowners insurance rate.

Why are credit-based scores used, and are they fair?

Studies support the notion that credit scores help predict the likelihood of a policyholder to file claims. Here’s the thing: The equation used to determine your insurance score may be unique to your insurance provider. That’s one reason why you could get a range of quotes from different providers when you’re shopping for home insurance.

Are credit-based scores fair? The Federal Trade Commission conducted a study in 2007 that found there is a definite connection between credit and the likelihood of filing a claim. The Property Casualty Insurers Association of America also maintains there is a connection, though it admits it can’t explain it. The PCIAA says most studies show that policyholders qualify for more preferred policies when credit information is considered.

Which parts of a credit score influence an insurance score?

Insurance scores aren’t used to measure creditworthiness, so only specific parts of a credit report are used to determine them. Providers might examine a person’s number of retail credit cards, the age of the oldest account and the number of inquiries in the past two years.

Since only specific parts of a credit score are used to calculate an insurance score, you can’t always predict insurance scores based on overall creditworthiness. While an individual may have an overall pristine credit score, other factors might be lacking. For example if the same homeowner filed multiple homeowners insurance claims in the past few years, their insurance score may be negatively impacted regardless of their creditworthiness.

Do insurance companies credit checks hurt credit scores?

People who work hard to maintain good credit might worry about a large number of inquiries on their credit which can negatively impact their credit score. Luckily, most insurance providers carry out “soft checks.” Unlike “hard checks,” soft checks have no effect on a credit score. This is particularly good news for smart consumers who collect multiple quotes before partnering with a specific carrier.

This article was contributed by Carrie Van Brunt-Wiley and Shannon Casey of the HomeownersInsurance.com blog. HomeInsurance.com partners with the leading home and auto insurance providers in the country to shop for the best rates for consumers. It also serves as a resource for industry information, including shopping trends, rates by state and other tips for homeowners.

Follow Credit Karma!

    Facebook: http://www.facebook.com/CreditKarma

    Twitter: http://twitter.com/creditkarma

    Google Plus: https://plus.google.com/+creditkarma

    YouTube: http://www.youtube.com/creditkarma

    Subscribe to the Credit Karma Blog

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

57 Comments

  1. According to my Home Insurance Score I will likely get hit by lightning tomorrow.

    Kevin at 1:40 pm on May 30, 2014
  2. My home insurance score is low and keeps dropping, I have a new roof, new Air conditioner and new solar water heater, wouldn’t my score go up with the new stuff? but this stuff doesn’t get reported when it should so this score is bogus as far as I’m concerned.

    bob at 8:52 am on June 1, 2014
  3. Yeah, my home insurance score is also crazy low compared to my other scores. I’ve lived in the same home for over 10 years now and never filed a home owner’s insurance claim. I also have at least 30% equity, which isn’t great but it isn’t by any means terrible, there are many folks upside down. Not sure how the stat is gathered but it seems very broken.

    I would actually expect my auto insurance score to be very low yet it is not, I’ve had several speeding tickets and several auto claims (one at my fault when my gf was driving my new truck). My previous auto insurer actually dropped me after the 3rd deer I hit in a span of 2 years.

    Based upon both of these observations, I would take these insurance scores with a grain of salt, they clearly aren’t taking important circumstantial situations into account.

    Erich at 7:03 am on June 5, 2014
  4. I don’t get this score at all. I’ve never owned a home and just recently moved back to the states after 13 years in Germany. I rented after 2 months of hotels and staying with a friend. I never filed any kind of claim, renters or home owner insurance. It is a poorly generated calculation of nothing.

    Joel at 7:17 pm on June 12, 2014
  5. I have owned a home for 20+ years…..ONE claim in that time,and our house was struck by lighting…………….NO FAULT on our part and yet this “home insurance score” is crazy low. We have never been late on home owners insurance we have it in escrow so the Mortgage company sends the check on the due date. I still dont get why my score is so low!!

    Debra at 8:32 am on June 19, 2014
  6. Auto and Home Credit Scores are hard to understand. It is only since joining Credit Karma that I was even aware of such scores. During the past few years my overall credit rating has dropped into the Poor category. I have had the same insurance company for over 15 years for auto and home, and believe I am receiving fair and competitive rates. My auto score is 898 which is deemed to be very good. This is understandable since I have owned and operated 4 different vehicles during the past 15 years, without any accidents or claims, other than a hail damage claim 14 years ago. The Home Insurance score is 624 which is considered to be Very Poor. We have lived in same house over 14 years and have had two claims for roof damage. One for hail and the other for fallen tree damage to the roof. We have owned 7 houses over a period of 50 years, and the only previous claim was for gutter damage caused by an ice storm over 40 years ago. All insurance claims occurred during years that I was gainfully employed and had a much better overall credit score than I have now. Why would I be more likely now to make a house damage claim? Why wouldn’t the same factors affecting real estate claims be the same as those affecting auto claims? A puzzle which I doubt anyone can explain.

    Richard L. Smith at 11:04 am on July 13, 2014

Enter your comment