Home insurance premiums are calculated based on risk. The higher the risk, the higher the premium. Insurance companies take a number of factors in to account when assessing whether you will be a low risk or high risk client. For home insurance, these typically include the age and condition of your property, the area you live in, and whether you have a security system installed. These all seem logical, as they relate directly to the chances of your property being broken in to or suffering damage.
On a personal level, the insurance company may take into account your claims history, as this may indicate a tendency to submit claims rather than pay for damage or repairs. However, it may surprise you to learn that your credit rating is one of the factors that insurers are taking in to account when calculating premiums for home insurance.
Why Credit Rating Matters for Home Insurance
Insurers equate a poor credit rating with a high risk client. Insurers take the view that a lack of responsibility in managing your money indicates a lack of responsibility in other aspects of your life, such as maintaining your home. Accordingly, a bad credit score will push up the premiums for your home insurance because the company will view you as a high risk client.
The Debate about Linking Credit Rating and Home Insurance
Some people argue that linking credit rating and home insurance premiums is unfair because it penalizes the working class, who are more likely to have missed payments on credit cards or other bills. In times of economic crisis, it can be more difficult to manage family finances. However, this does not necessarily mean that the client has changed his attitude to maintaining his property or become an increased risk for the insurance company.
Insurance companies state that there is a correlation between poor financial management and increased risk of insurance claims. To the insurance companies, this justifies the increased premiums for individuals with poor credit ratings.
Credit Ratings are Easy to Access
In reality, your credit rating may not affect your attitude to home maintenance and security. Missing two or three credit card payments does not make your home any more likely to be broken into. However, it is an easy measure for the insurance company to access.
Lowering Your Insurance Premium
If you find that your insurance premium has increased because of a bad credit rating, shop around for other quotes. You may find that you get a better deal from a competitor who puts less emphasis on your credit rating. Alternatively, talk to your insurance company about discounts for installing additional security features, such as alarms.
What Affects My Credit Rating?
Every time you apply for credit and make or miss a payment on a loan, credit card, or bill payment, the company extending credit will file an update with the three national credit reference agencies: Experian, Equifax, and Transunion. These agencies analyze the information and assign a credit score. Higher levels of available credit and prompt payments can lower your score, while late and missed payments lower your score.
Improve Your Credit Rating for Better Insurance Rates
The first step to improving your credit rating is to apply for a credit report. Analyze the report to find out if it is accurate. Incorrect information can adversely affect your credit rating. If you find that the report contains errors, write to the company responsible for the inaccurate entry and ask them to correct it.
The next step is to improve your credit rating. Ensure that you get on top of your debts and manage your money so that payments are made in a timely fashion. If you are struggling to pay your loans and credit cards on time, consider taking advice from a debt specialist to improve your financial situation.
Guest post: contributed by Sara Lennon on behalf of Merlin Assurance – the Quebec Home Insurance specialists.