What is a home insurance score?

home-insurance-scoreImage: home-insurance-score

In a Nutshell

Insurers calculate home insurance scores based on several factors, including credit information, and use it to predict the likelihood of you filing an insurance claim that would result in losses. The less risk you pose, the lower your premiums are likely to be.
Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

You probably already know it’s a good idea to keep track of your credit scores. But do you know what your home insurance score is?

A home insurance score is different from a credit score, but still important to know since it can affect how much you pay in premiums on your homeowner’s insurance.

So what’s the difference between the two types of scores?

Credit scores are based on your ability to repay what you’ve borrowed, while a home insurance score predicts the chances you’ll file a homeowner’s insurance claim that will result in losses to the insurance company.

Even though credit scores and home insurance scores perform different functions, some factors of your personal credit history are also considered when calculating your home insurance scores. That’s because some studies have shown that a person’s financial history is generally a good indicator of how likely they are to file an insurance claim.

As with credit, to insurers, the higher your insurance scores, the lower the risk you pose to them. The good news: Lower risk and a higher insurance score usually result in lower premiums.

Let’s find out how home insurance companies determine your home insurance scores, what makes you a higher (or lower) risk to them, and how that ultimately affects the cost of your home insurance premiums.

What factors make up a home insurance score?

Each insurer has its own method for assigning you a home insurance score.
Regardless of who is determining a score for you though, the complexity of factors and calculations involved in generating a score makes it difficult to determine exactly what could raise or lower your home insurance scores.

Fortunately, we have enough information from studies and insurance company websites to have a good idea of what factors make up a home insurance score — including information from your credit reports and even certain information about your home and neighborhood.

Here’s a breakdown of some of the factors that can influence your home insurance scores. You may recognize some of these factors if you religiously follow your credit, and that’s because credit often plays a big role in calculating your home insurance scores.

  • Age of oldest account. Unlike average age of accounts, the age of your oldest account is that of the first credit account you opened that is still listed on your credit reports. It might be from your college days or early 20s.
  • Credit card utilization. Utilization is the total amount of outstanding debt on your credit cards divided by your total credit card limits. In general, the higher the utilization, the greater the insurance risk.
  • Derogatory marks. Derogatory marks cover a variety of negative information on your credit reports. You don’t want these on your credit reports, because an insurance company will likely view you as a higher risk to file a claim.
  • Hard inquiries. Hard inquiries are generally made when you apply for a new line of credit, as well as occasionally for apartment rental applications. The more hard inquiries you have, the greater insurance risk you may represent to an insurer.
  • Amount past due. If you always pay your credit cards off (or at least the minimum amount) in a timely fashion, you will not have a past due amount. That’s good. A past due amount may represent a higher insurance risk, especially if the total past due across all your credit is high.
  • Status of your credit accounts. Your credit reports indicate if your accounts are paid on time with at least the minimum payment amount made. If your credit accounts are in good standing, this may have a positive impact on your homeowner’s insurance scores. If any accounts have been sent to collection, foreclosure or repossession, your scores may be impacted negatively.
  • Total credit card limits. This is the total dollar amount of all the limits on all your credit cards. Higher total credit limits can be good. They may indicate a lower insurance risk.
  • Your home and neighborhood. There are other factors about your home and neighborhood that insurers may consider when determining your score. These include the proximity of your home to a fire hydrant or fire station, the claims history in your neighborhood, whether you have an alarm system, and whether you’re located in an area that is prone to natural disasters. All these factors (and many more) may be considered when determining how low or high your insurance premiums will be.

Because home insurers incorporate factors from your credit history, you’ll often see your score referred to as a credit-based insurance score. According to FICO®, about 85% of home insurers use credit-based insurance scores in states that allow it.

Why is credit history used to determine home insurance scores?

Home insurance scores are designed to help insurers predict whether you’ll file a claim that will result in losses specifically in an insurance context, but insurers may view credit risk and insurance risk as being linked. By measuring the amount and degree of risky behavior a consumer engages in with credit, insurers try to predict how likely the consumer is to engage in risky behavior that could lead to a costly insurance claim.

The important thing to remember: Insurance companies want to see a history that reflects stable and responsible decision making. As long as your credit history reflects that, a healthy home insurance (and credit) score may follow — meaning potentially better insurance premium rates for you.

How can I improve my credit?

There’s no quick fix. Improving your credit health takes time, but the most important behaviors can be summed up like this: Pay your bills on time (and if possible, in full) and reduce the amount you owe. It also helps to check your credit reports regularly. Any errors, such as a collections account that hasn’t been removed from your reports after seven years, should be disputed with the credit bureau(s).

How to find your home insurance score

To find your home insurance scores, contact your current home insurer or its competitor. Remember, each insurance company uses its own modeling to determine your score. Your premiums could be lower for the companies that calculate a higher score for you.

Bottom line

If you’re worried about your home insurance scores, the good news is that maintaining your general credit health is a great place to start. As a Credit Karma reader and user, you’ve probably already been keeping an eye on your credit. Keep it up — responsible credit management can work to your benefit in more ways than one.

About the author: Rod Kelly has been a writer and editor for more than three decades, the last of which has been in the financial services industry. A native of Minnesota, Rod has made Chicago his home along with his wife and children. Read more.