If you've researched or gone through the process of getting a home loan,
you know how important it is to have a good credit history. But did you
know insurance companies also use your credit habits in determining
whether they'll provide you with insurance and how much you'll pay?
Insurance companies have traditionally used many factors in determining
how much of a risk you are to get into an accident or incur losses
resulting in claims.
For example, insurers will look at your driving record and how long you've
been driving when you seek auto insurance. Likewise, when you apply for
homeowners insurance, they'll look at the age, size, and construction of
your home.
Through the years insurers have found a person's credit information to be
a highly accurate predictor of risk, according to the Insurance
Information Institute, a non-profit organization supported by the property
and casualty insurance business.
Insurance companies
typically weigh the factors as follows:
- 30 percent: How much you owe. This typically evaluates how many accounts
you have, how many have balances, and how much is owed on existing loans.
- 15 percent: Length of credit history. Usually the longer your credit
history, the better your score on this section.
- 10 percent: New credit. If you've opened a lot of new accounts in a short
period of time, your score will be lower. The system also takes into
account how long it's been since you've opened an account. And if you had
a bumpy period followed by a strong payment history, it will be considered
favorably.
- 35 percent: Payment history. You'll score high here if you make your
payments on time and you don't have any bankruptcies, foreclosures, liens,
or the like. If you have made late payments in the past, your score will
reflect how frequently you were late and how late you were - in the eyes
of insurance companies 90 days is viewed as much riskier than 60 days.
- 10 percent: Types of credit. This will factor in your credit mix - retail
accounts, installment loans, credit cards, finance companies, etc.
Credit scoring is usually an advantage for those who have stellar credit
histories because it can mean lower rates. It can also be advantageous to
those who have a good history but may have filed claims in the past.
If you have a wobbly credit history, you can work on cleaning it up by:
- Requesting a copy of your report and making sure it's accurate.
- Keeping your balances low.
- Paying off your debt.
- Making payments on time.
- Refraining from opening new accounts.
- Re-establishing credit if you've had problems in the past - but do so
responsibly.
- Knowing that closing an account doesn't wipe it from your credit history.
And if your credit score has bumped up your insurance rates or if you're
looking for ways to reduce how much you pay for homeowners insurance, you
can begin by shopping around and comparing rates. You can also lower your
premiums by raising your deductible amounts.
If you have any questions
or need advice on purchasing a new home, please call me at 303.520.3179. I look
forward to working with you soon.
