Editor’s Note: This blog was originally published in June 2020 but has been updated with new information.

How Your Credit Score May Affect Your Homeowners Insurance Premium

Whether you are a first-time homebuyer in the South Coast of the Rhode Island area, or you’re a longtime resident looking to make the move from your current home, the team at HIG wants to make sure you are aware of one key thing that could greatly impact your home buying process. Do you have a healthy credit history?

Your credit score generally affects everything from your ability to get a mortgage, the interest rate you will get on your loan, your refinancing options, and access to loans for home renovations in the future. As your local insurance agent, HIG also wants you to know that your credit record might even have an impact on what home insurance premiums you will be offered.

How your credit history could drive your home insurance rates up

At HIG, we work with the leading regional and national insurance partners to get the most competitive quotes on a new home insurance policy for our clients. However, some of the factors these carriers use to come up with their quotes may surprise you. Specifically, insurance providers will assess a potential home insurance buyer like you on several risk factors, including these four credit-related questions:

  1. Do you have any outstanding debt? If you’re still chipping away at your student loans, have outstanding credit card balances, or carry any other unpaid debt, an insurance provider may not look favorably on these circumstances, and it could increase the home insurance premium they are willing to offer you.
  2. Do you pay your bills on time? Insurance providers want to see that you pay your bills by their due dates. One missed or late credit card payment can haunt you for a long time, often staying in your credit history for seven years. In addition, a closed credit card account is fair game for insurers, as they will often review your accounts and payment history for up to ten years after an account is closed.
  3. How many credit accounts do you have? It is actually beneficial to have had a mix of credit accounts prior to buying a house and home insurance. This may demonstrate to insurers that you have a long, solid credit history. According to FICO, a credit scoring service, the average person with an “excellent” credit score has roughly six accounts listed on their credit history, including closed accounts. Conversely, if you have a short credit history, then your home insurance rate might be negatively impacted.
  4. Do you have any new applications for credit pending? If you are applying for a new line of credit or a loan, this may result in what is called a “hard inquiry” into your credit by the lending bank or credit organization. Just having someone look into your credit can negatively impact your credit score, leading home insurance carriers to assume you are a higher risk customer.

These are just a few of the items insurance carriers typically investigate before determining your home insurance premium. If you’re already getting a cold sweat thinking about some of the bad decisions you’ve made in your payment history, then it’s time for some straight talk from HIG on how to improve your credit score today and, hopefully, improve your home insurance rate in the future.

HIG’s three tips for improving your credit score and getting a better home insurance rate

First things first, check your credit score. There are several places you can do this online, free and easy, including at creditkarma.com, Experian.com, or nerdwallet.com. Now, with your credit score in hand, it’s time to evaluate whether it needs some rehabilitation before you start the homebuying process.

If your credit score is between 300 and 580, it is in a range that not only lenders, but also insurance providers will consider “poor.” However, there are several steps you can take to get it back into the “fair” (580-669), “good” (670-739), “very good” (740-799), or even “excellent” (800-850) range. Actually, these three behaviors would be beneficial for anybody with less than “excellent” credit to implement:

  1. Don’t miss bill payment deadlines. According to MyFico, up to 35% of your credit score is determined by how timely – or delinquent – you are in paying bills. If you have a pattern of forgetting to pay your credit card or loan payments by their due dates, one simple solution is to set up autopay for your regular billers. That way, monthly payments for cell phone service, student loan debt, or your car lease/loan will come right out of your account without you even having to lift a finger. One major benefit to autopay is that you will stop racking up late fees on these past due bills. But, most importantly, your credit score is likely to improve when you make consistent and on-time payments.
  2. Create a plan to start chipping away at outstanding debt. Getting out from underneath debt is not something that can typically be achieved in a few days, or even months. However, there are a few steps you can take to start cutting down on what you owe to debtors. For example, you could begin by identifying the credit card in your wallet with the highest interest rate. Then, immediately stop purchasing items with it and focus on making regular payments until you pay off that credit card. By paying off any one of your debts in full, you should positively impact your credit score.
  3. Continue to monitor your credit report. Regularly checking your credit report can be extremely important when you are trying to improve your credit score. You should be able to see exactly what is negatively impacting your score, including any errors. Credit report errors could be anything from fraudulent accounts opened in your name to inaccurate personal information. Disputing the wrongful information, and getting the situation resolved, should help boost your score.

While following these three steps for improving your credit score is a marathon and not a sprint, it should help you look more attractive to both lenders and insurance providers. Improving your credit record should also result in getting you access to more affordable mortgage terms as well as better rates on your homeowners insurance.

HIG helps you with all your home insurance needs and so much more

With over 100 years of combined insurance experience, the team at HIG is well-versed in finding the most comprehensive and affordable home insurance coverage for home buyers and owners across the South Coast of Rhode Island. Our knowledgeable team is committed to providing you and your family members with the same personalized service that generations of homeowners have experienced since we opened our doors over a century ago.

Part of our “Service Promise” to our clients is that we will always provide you with straight talk, which includes information and tips that we believe will be relevant and useful to you as a client of ours. This includes sharing insights about the things that can potentially impact your homeowners insurance costs, including your credit history.

If you think you will be venturing into the home buying process sometime this year, we hope you will contact us for support and advice on your home insurance. We look forward to putting our experience to work for you.