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Why Your Credit Report Matters When It Comes to Your Home and Auto Insurance

Personal Finance

It’s no secret that your credit report plays a big role in how much you pay for your car or home. The better your credit score, the lower the interest rate on your mortgage or car loan and the lower your payments.

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That makes sense.

But did you know your credit report also affects how much you pay for home and auto insurance?

While the use of credit scores in setting home and auto premiums is controversial, it is one of many important factors used to determine customers’ risk to lenders.

The home factors

Homeowners who are judged to have lower risk generally pay lower premiums for coverage.

In addition to your credit history, providers typically look at the following factors when assigning risk to prospective home insurance policyholders:


The location of your home influences your risk of certain natural disasters – tornadoes, hurricanes, and other powerful storms. Proximity to fire stations and hydrants also matters – the closer, the better.

Finally, local construction costs come into play because they help determine how much a provider must pay to rebuild your house after a covered event.

Age and size of the house

In general, older homes, are considered to be higher risks than newer ones, particularly if the roof, electrical, and plumbing systems haven’t been replaced recently.

Claims history

Providers believe policyholders who have filed claims are much more likely to file again.

The auto factors

Car insurance providers also evaluate your risk. In addition to your credit report, here are some of the top factors considered:


This tells providers whether you live in an area with a greater frequency of wrecks. In general, urban settings are riskier than rural ones.

The vehicle

The make and model of the car also give carriers insight into the likelihood of claims. Providers use a variety of statistical evidence related to this. And, of course, the more expensive a vehicle is to repair or replace, the more you’ll pay to cover it.

Driving history

If you have a history of tickets or wrecks, you’ll be assigned a higher risk than someone with a clean record.

Claims history

Again, providers believe policyholders who file claims are more likely to file more, so first time filers typically pay less.

Coverage limits

Liability coverage is required in nearly every state, but many other types of auto coverage aren’t mandatory. When you add protections such as collision and comprehensive, you’ll pay more for a policy.

Why credit matters

No one has to explain the above factors. They’re common-sense considerations for how much your coverage will cost. The thing that doesn’t seem to belong on the list is credit.

Insurance providers maintain that some of the information in your credit report is a good predictor of your risk of filing a claim. It goes almost without saying that insurance carriers prefer home and auto policyholders who don’t file claims.

The good news is that providers evaluate this information differently, so it’s important to shop around for your coverage.

The potential impact of bad credit on your finances

According to a study by the Consumer Federation of America, one large provider charges policyholders with the worst credit about 127% more than those with the best.

That same study found that about 95% of auto insurers use credit reports and that about 85% of home insurers use them. Only California, Massachusetts, and Hawaii prohibit use for insurance purposes.

Maintaining good credit can lower your monthly bills in a number of ways, including your home and auto insurance premiums. Tweet this

Quote saying 'Maintaining good credit can cut your monthly bills in a number of ways; including your home and auto insurance premiums. '- By Arthur Murray

Keeping your home and auto insurance affordable is one more reason to live within your means and monitor your credit report annually.

Photo credit: carnagenyc via photopin cc

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