Guide to Homeowners Insurance Credit Scoring

This is your credit habits which the insurance companies use 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.

While insurers look at the same factors as lenders, they weigh each factor differently.

"The biggest difference is that insurance risk scores look for stability, but credit risk scores look for a reliable pattern," Craig Watts, a spokesperson for Fair, Isaac, and Co., whose insurance risk scores are used by about 300 insurers nationwide,says:.

Insurance companies typically weigh the factors as follows, according to FIC:

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.
"Insurance scores are also more interested in how regularly you pay than in how much you already owe," Watts said.

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.
Contacting a legitimate credit counselor..
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.