How Your Credit Score Could Impact Your Home Insurance Rate
Your credit rating is incredibly important. It can not only help determine whether or not you’ll be
approved for a loan or a mortgage, but also how high the interest rate you’ll have to pay for it.
But did you know that your credit score also has an important effect on your home insurance
Using Credit Scores to Determine Risk
Insurance companies first started looking at credit scores as part of their assessment of
potential risk in the early 1990s. They have determined, statistically, that people with lower
credit ratings are more likely to make insurance claims.
Despite now being common practice in the insurance industry, using credit scores to assess
potential risk remains a controversial matter. Critics maintain that being late in paying bills does
not make a home more susceptible to damage from flooding, fire or theft. Meanwhile,
representatives of the insurance industry will argue that a credit score is an accurate reflection
of a person’s behavior and level of financial responsibility.
How Much Of A Difference Can It Make?
A 2014 study made by Quadrant Information Services indicated that US homeowners with a
poor credit history could be paying as much as 91% more for home insurance than people with
an excellent credit rating. Meanwhile, people with a median credit rating are paying 29% more
than homeowners with an excellent rating.
The impact of credit ratings appears to be similar for Canadian homeowners. MoneySense
magazine reported in 2013 that rates could increase by as much as 80% based on credit
scores, and in certain instances coverage may even be denied.
The issue is so controversial that the use of credit scores for personal property and auto
insurance is currently prohibited in Newfoundland and Labrador, while in Alberta and Ontario,
credit scores cannot be used for mandatory automobile insurance coverage, but no such
restriction exists for personal property insurance.
What Can You Do?
Whether you agree with the use of credit scores in assessing potential risk for home insurance
policies or not, it is a reality for Ontario homeowners, and it further underscores yet another
reason to maintain an excellent credit rating. Some of the ways to do this include:
Pay bills on time Even the occasional tardy payment can end up on your credit report and
affect your score. Simply by making a payment that is more than the minimum required payment
on time every month can go a long way in avoiding those blemishes on your score.
Keep your credit card balances in check A high balances on your credit cards mean you
have less available credit. It’s recommended that you keep your balance below 30% of your limit
and that you maintain no more than three credit cards in total.
Don’t cancel old credit cards an important part of your credit score is how long you have
maintained credit. By keeping older credit cards active, you are ensuring that your longstanding
history is maintained by the credit bureau.
Don’t apply for new credit too often every time you apply for a new credit card, a loan or a
mortgage, it’s noted on your credit report. Frequent applications or several made in rapid
succession can be deemed as a sign of a higher credit risk.
Check your credit rating annually having an annual review of your credit report will help to
spot and correct any discrepancies that may occur as quickly as possible before they have long lasting
By keeping your credit score in good standing, you will go a long way in making sure that you
get the best possible insurance rates for your home.