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How credit history affects your insurance bill

November 29, 2016
A good credit score could mean better deals on homeowners insurance.

If you're an active consumer in the U.S., chances are you use a credit card for purchases large and small. In fact, based on statistics from the Census Bureau, around 167 million Americans carry at least one credit card with them. Another study from Gallup indicated that it's normal for shoppers to own more than one credit card. The average cardholder has two or three different credit accounts, according to the Gallup survey.

Credit cards offer convenience as well as numerous other perks for those that use them, but they can also become the cause of huge financial headaches. Running up high amounts of debt from interest payments and missed bills is bad enough, but that's only the start of the trouble when credit cards aren't used responsibly. That's why using them and other forms of credit carefully can end up saving money on many things, including homeowners insurance.

The relationship with rates

When someone applies for a new home insurance policy, the insurance company will first run through a series of routine tests to learn more about the applicant. As The New York Times reported, this usually includes a credit report, a comprehensive history of just about every credit card, loan or other financial action that someone has recorded throughout their life. The information from this report is used to determine a fair rate for insurance coverage.

"Homeowners with poor credit could end up paying much higher insurance rates.”

While every insurance company has different standards, there are some universal trends. According to research from data analysis firm Quadrant Information Services, homeowners with “fair credit" can expect to pay around one-third more for a standard homeowners insurance policy than someone with “stellar credit.”

The Times found even more bad news for those with a credit history considered “poor.” Homeowners with a record of missed payments, loans in default or bankruptcy could end up paying two times more on a policy than someone with good credit. That could mean hundreds or even thousands of dollars in additional costs.

Expensive insurance is just one way consumers pay if they don't use credit responsibly. Still, there are steps to be taken that can minimize the damage from bad credit, and find a better deal on homeowners insurance.

  • Know your score:  No matter if you think your credit is excellent or dreadful, the first step to take is finding your credit report. Every citizen of the U.S. is entitled by law to three free credit reports per year, one from each of the major credit monitoring agencies. By visiting AnnualCreditReport.com, it's possible to quickly gain access to these reports online. You can request all three at once if you'd like, or spread them out throughout the year. Once you have them, check the reports for your credit score and any specific factors listed.
  • Pay off debt:  Missed or late payments on loans or other credit accounts are the most common reasons for poor scores. If you see anything on your report that indicates a late payment, do your best to correct this by either paying the debt or calling the creditor to discuss your options.
  • Shop around:  As always, deals on home insurance are out there for those who search hard. Try to get a quote from at least three different companies to make sure you get the best deal, no matter your credit history.

You might be paying more for insurance than you need, but that doesn't mean you need to keep doing so. Use all the options at your disposal to get an affordable, reliable policy and keep your family safe.