May 6th, 2013
The Importance of Home Insurance Scores
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**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.
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