Insurance companies examine your credit score to identify if you are eligible to receive insurance and determine the potential risk of giving your home insurance. Based on your credit history, insurance companies assign you a score that indicates your eligibility for an insurance policy.
Therefore, it is crucial for you to understand and comprehend how your credit score affects home insurance costs in Connecticut, specifically. Apart from California, Massachusetts, and Maryland, all states, including Connecticut, factor in credit scores to determine homeowners insurance rates.
In this blog, we’ll cover the following discussion topics:
- Introduction to Credit Scoring
- The Factors that Influence Your Credit Score
- Quick Connecticut Credit Stats
- How Much Does Your Credit Score Affect Your Home Insurance Premium?
- 7 Ways to Improve Your Credit Score
- How to Reduce Home Insurance Premiums in Connecticut
Introduction to Credit Scoring
Insurance companies utilize a credit-based insurance or a CBI score to calculate whether you will have an insurance claim or loss. This standardized credit scoring system has been in effect since the early 1990s.
Insurance companies assign you a credit score in Connecticut and other states by basing it either partially or completely on your credit information. The insurance company performs what is called a ‘soft’ check. However, the soft check does not show up on your credit report.
You should aim for a CBI score of 760 and above, as anything below 600 is considered a poor CBI score as reported by the Insurance Information Institute.
Factors that Influence Your Credit Score
The National Association of Insurance Commissioners reports that the following factors influence your CBI score:
|Influencing Factors||% Represents Your CBI Score|
|Payment history indicates your punctuality in making payments on outstanding debts, if any||40%|
|Unpaid debit is the money you still owe to creditors||30%|
|Duration of credit history (line of credit)||15%|
|New credit history (how recently you applied for a new line of credit)||10%|
|Combination of types of credit (credit cards, student loan, auto loan, and mortgage loan)||5%|
Other factors that can have a negative impact on your credit score and home insurance eligibility are:
- Foreclosures or repossessions in 5 years before applying for homeowners insurance
Your gender, race, income, age, marital status, profession, residence, employment history, family, rent, child support arrangements, and credit counseling are not factored into the calculation of your CBI score.
Quick Facts: Connecticut’s Credit Stats
Connecticut’s credit facts courtesy of Credit Card Local:
|Credit Debt: The State of Connecticut vs. the United States|
|Residents in CT have an estimated credit card debt of $5,617.|
|The estimated credit card debt in CT is more than the United States’ estimated credit card debt of $4,965.|
|CT places 3rd in the United States in average credit card debt.|
|Credit Card Delinquency in the State of Connecticut|
|In the United States, CT ranks 33rd with a credit card delinquency rate of 9% less than the country’s average of 0.57%.|
|CT’s rate stands at 0.52%.|
|The United States’ average rate stands at 0.57%.|
|Credit Scores in the State of Connecticut|
|Residents of CT have an estimated CBI score of 713.|
|The estimated CBI score for residents of CT is more than 2% than the country’s average of 696.|
|The state of CT ranks 13th in the United States for credit scores.|
How Much Does Your Credit Score Affect Your Home Insurance Premium?
According to the report published by the Arkansas Insurance Department, credit scores result in a reduction in premiums for more than 57% of people and a 16% increase in price for others. If you have a good credit score, insurance companies will charge you a lower home insurance premium in contrast to a person with a bad credit score.
Since the CBI scores are completely ’blind,’ meaning objective, they promote competition among different insurance companies. This benefits you because you have more choice. Another benefit you receive is that insurance companies can give you multiple pricing tiers in the homeowners insurance.
For instance, if you have a good credit score, you will receive lower premiums on your homeowners insurance and the opposite is true for someone with a bad credit score. They will have to pay higher premiums on their homeowners insurance, as insurance companies consider them a high-risk customer. As per them, the probability of the high-risk customer filing a claim and costing them more money is high.
7 Ways to Improve Your Credit Score
If you reside in Connecticut and want to pay lower insurance premiums on homeowners insurance, here are seven tips that can help you out:
Keep Credit Card Balances 30% or Lower
Your credit card balance should be 30% or lower. You can increase your credit score by decreasing your credit card balance and keeping it below the recommended threshold. If you have more than one credit cards, you can consolidate their balance with a personal loan to improve your score.
However, even if you clear your credit card balance each month, you could still have an increased utilization ratio. Some insurance companies use the credit card balance on your bank statement as the one given to the bureau, which still influences your score. To resolve this issue, find out if the credit card company will accept several payments each month.
Eliminate Small Credit Card Balances
To increase your credit score, examine all the credit card balances you have and find out which one you can eliminate straight away. A good strategy to practice here is to eliminate small credit card balances first.
When you have multiple credit cards, you tend to purchase small items on two separate cards, leading to a poor credit score. Once you have paid off the small balances, use no more than two cards to make purchases.
Do Not Erase Old Debt from Your Credit Card Report
Do not erase old debt from your credit card report. If you have paid off a debt in full, leave it on your report. It is not damaging to your credit score in anyway. As for bad debt, do not concern yourself with them, as they will automatically be removed from your report in seven years.
The debt you have paid in full is regarded as good debt and positively impacts your credit card history. Leave both good debt and old debt on your credit card history to improve your score. Moreover, do not close old credit card accounts where you have made timely payments.
Perform Rate Shopping within a Short Duration
You should perform rate shopping within a short duration because creating several applications for credit indicates you want to use more credit, thus leading to a slight decrease in your credit score. The slight decrease in your score lasts for one year.
However, when making more than one inquiries for student loan, auto loan, or a mortgage loan, the insurance company will count the inquiry as one loan. Insurance companies use the FICO score to determine the duration you asked the inquiry.
They will ignore the inquiries made in 30 days before scoring, and if the inquiries made are more than 30 days older, they will count it as one loan. Furthermore, find out the type of scoring software your insurance company uses.
If they are using the new form of the scoring software, you have 45 days, and if they are using the old form of the scoring software, you have 14 days. Old forms of the scoring software will not count several inquiries made for a mortgage loan as one inquiry no matter how close they are together.
Pay Your Bills on Time
If you want to buy a home, you need to ensure your credit score does not decrease. Keep paying bills on time even if you have money saved up for the house. Your credit score will remain high if you pay your bills on time each month. Saving money for a house is a good idea, but that should not affect your ability to make timely payments.
Do Not Indicate Risk
Missing payments and paying less or charging more than you usually do indicates risk. The insurance company will take that as a red flag and it will affect your credit score. If you have been using your credit card at businesses such as paying the fee of a divorce attorney or visiting a pawnshop, it will also raise a red flag.
However, it will not affect your credit score, but the insurance company will still consider you as a high-risk applicant. Even though it may not be under your control, you should try not to do anything that may be seen as a risk.
Focus on Improving and Maintaining Your Credit Score
If you need to apply for home insurance, focus on improving and maintaining your credit score. You need to pay your bills on time, clear small balances, and use your credit card in a responsible manner. By making smart spending decisions, your credit score will improve.
It is recommended that you start to pay attention to your credit score a few months prior to applying for home insurance to buy a home. Keep in mind the score your bank uses and the insurance company uses may differ from each other. Even so, you can use the score your bank uses to understand what areas of your credit you need to improve in.
After you have managed to improve your credit score, you can apply for home insurance. If the insurance company denies you credit or suppose you do not quality for their best rate, you can ask the insurance company to provide you with the credit score they used. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, insurance company by law has to show you the credit score they used.
How to Reduce Home Insurance Premiums in Connecticut?
Here are three ways residents of Connecticut can reduce their home insurance premiums:
Good Credit Score
A person with a bad credit score will be required to pay 91% more than a person with a good credit score. As mentioned previously, Maryland, Massachusetts, and California do not factor in your credit score on home insurance rates, but Connecticut does, which means you need to maintain a good credit score if you want lower premiums and save money.
Think Twice Before Making a Claim
When you buy homeowner insurance, you do not want to use it. By making insurance claims, your rates will increase. Most often, when you make one home insurance claim, you tend to make another one. Therefore, insurance companies take the initiative to adjust the premiums to balance out the risks. Your insurance premium can increase by an average of 9% depending on the type of insurance claim you make. If you want to save money, you need to think twice about filing a claim and determine if filing for it is in your best interest. Also, only file for claims if it is absolutely necessary. Otherwise, pay for what you can from your own pocket by making home repairs, for instance.
Consider the Home’s Claim History
When you are purchasing another person’s home, you need to look at the home insurance claim history. Their home insurance claim history can influence your current rate. Unfortunately, insurance companies do look at the claim history of the previous owner.
If their claim history is bad, the insurance company will deem it as a risk. Their train of thought is that you will also make claims on the property down the line. They will end up charging you more. That’s not the only thing that is unfair.
If you talk to your real estate agent about performing certain home reports, it can result in a higher rate for you. By inquiring about it, you are indicating to the insurance company that it happened, thus making you a high-risk candidate for them.
Therefore, when you talk to your real estate agent, you need to make it clear to them that you are asking about what the policy covers or you are making a formal claim for the repairs. Additionally, you want to ask what insurance claims the seller made in the past seven years before you buy the house.
Use the information here to increase your credit score and keep your home insurance premiums low.
Digital Marketing Director