Understanding credit-based insurance scores

Can Your Credit Score Affect Your Home Insurance?

February 5, 2024

Your credit score can affect your home insurance rate.

Here’s what you need to understand about the connection between your credit score your home insurance rate.

Understanding credit-based insurance scores

When it comes to home insurance, insurers often use credit-based insurance scores to assess risk. These scores are distinct from traditional credit scores but share similarities.

Basically, insurance companies have discovered a connection between an individual's credit history and their likelihood of filing an insurance claim. People with a lower credit score are statistically more likely to file an insurance claim.

The logic behind the connection

Insurance companies analyze vast amounts of data to determine the risk associated with insuring a particular individual. Through statistical analysis, they have found that individuals with higher credit scores tend to file fewer insurance claims.

On the flip side, those with lower credit scores may be perceived as higher risk, as they might have a history of financial challenges that could lead to the increased likelihood of claims.

Why is a soft credit check?

In many cases, a soft credit check will allow an to give you the best price for your home insurance. It is a factor that determines the level of discount available to you on the insurance product you are seeking, such as house and car insurance.

Soft credit checks don't affect your credit rating or score and are not used when applying for new credit.

Regulatory variations

The use of credit-based insurance scores varies by province and by insurance company. This means that the impact of your credit score on your home insurance rate is going to differ based on where you live.

Check with your insurance provider

If you're curious about how your credit score affects your home insurance rate, you can check with your insurance provider directly. Insurance companies have their own underwriting processes and policies, and they can provide specific information about how credit scores factor into their pricing decisions.

Steps to take

If you discover that your credit score is influencing your home insurance rates, there are a few steps you can take to mitigate the impact:

Check Your Credit Report: Obtain a copy of your credit report to ensure its accuracy. Report any errors and work on resolving them promptly.

Improve Your Credit Score: Focus on improving your credit score over time by making timely payments on monthly bills, reducing outstanding debt (best practice is to use less than 30% of your credit balance), and managing your credit responsibly for the long-term. Unfortunately, there’s no short-term fix for your credit score.

Shop Around: Insurance companies have different policies regarding the use of credit scores. Consider shopping around for quotes from various insurers to find the best rate for your specific situation.

While the link between your credit score and home insurance rates may seem surprising, understanding the rationale behind it can help you to take control of your financial situation.

By staying informed, checking your credit report, and working to improve your credit score, you can potentially secure more favorable rates for your home insurance coverage.