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Question By
terrimitchell

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HOME INSURANCE SCORE
How can I find out WHY my HOME INSURANCE SCORE shows POOR when I have not had a home claim paid by my insurance company in at least 15 years? What is going on with this? It makes me FURIOUS to have great scores on everything EXCEPT this. Insurance is such a rip off anyhow, and to have something like this affect your scores when you have done NOTHING to deserve this. I pay my premiums every month ON TIME OR BEFORE TIME, and yet my score is POOR? What the crap????!!!!!! I HATE INSURANCE COMPANIES!!

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Home Insurance Score

Helpful to 11 out of 13 people

It looks like it is based on what you owe on your secured property. In my case, I had a good home insurance score until I bought a new car.  The score dipped then, again when I bought another car, and plummeted when I bought furniture on credit. When I paid the furniture off early, my score went from poor to fair. So it appears that I need to pay my cars off in order for the score to return to very good. Looks like the more property you have with outstanding balances, especially cars that depreciate, the greater the chance of you filing a costly claim against your property) and the greater your loss would be as opposed to paid off property). In a way that makes sense. Why cars would factor into home insurance, I couldn't tell you.

Reply by
johnherriges

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Helpful to 0 out of 2 people

I have executive lease cars so they are not even registered in my name.  I do have another car but I paid cash when I purchased it.  What confuses me further is that every month my home and auto scores PLUMET further.  Odd since my outstanding principal balance on the my mortgage goes does each month, and by quite a bit as I am 20 years into the mortgage.  At first I thought it may be my income to debt ration, however, that would affect my overall score as well, which is excellent.  All CK could tell me was that they have NO idea how the scores are calculated and that I must contact Transunion.  My credit report is excellent, so I have no idea where they would come up with such scores either, but to satifsfy my curiosity, I shall contact them.

Reply by
johnherriges

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Helpful to 4 out of 7 people

That cannot be correct.  I have 2 executive lease cars but they are registered in the companies name and are never refelect on any of my credit reports.  The third car that I do own was paid for in cash.  I cosigned on my son's car but he owes a mere $2000.  What confuses me is that the score drops each month even though what is owed on the car is reduced each month.  Additionally, if they did use outstanding car loans and mortgages, it would also affect your overall score as they factor in your income to debt ratio.

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Most Helpful Response

70% of population is rated "poor"

Helpful to 10 out of 11 people

I also have a poor home insurance score for no discernible reason. My credit score has been a little lower than I would like, but it's not bad. The interesting thing is that my "Poor" home insurance score is higher than approx 70% of the population. How can 70% of the population be suffering from "poor" home insurance scores??? If 70% of the population made claims on their home insurance, they would put the home insurance industry out of business. In a bad year, the default rate at an insurer is probably around 12% of policies making claims. How can the insurance companies get away with saying 70% of the population are poor risks? It really can't even be possible or they wouldn't be insuring any of us, the risk would be so high.

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55 People Helped

An explanation would be nice...

Helpful to 8 out of 10 people

An explanation from Credit Karma would be nice. I assume since this is very new that is is experimental and not yet reliable. But like others, it bugs the hell out of me. All of my other scores, including auto insurance score, are in the Excellent range but this one is in the Very Poor range. That can't be right, assuming it uses the same credit data from our records as the other scores. Please, just some explanation of what this is about? 

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114 Contributions
138 People Helped

Helpful to 6 out of 7 people

The home and auto insurance scores are based soley on your credit report and has absolutely nothing to do with past claims. The assumption is being made that someone with a lower score or greater debt is more likely to file a claim against an insurance policy. This is where I feel your frustration. We are required (in most cases) to pay for insurance on our vehicles, homes, and mortgages and we expect the policy to pay when it is needed, Then this score penalizes us for using something that's required anyway. It's ridiculous. However, your insurance company may not even use this to set your rates.

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Reply by
TheBattman

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Helpful to 0 out of 2 people

I have good credit, and not a huge amount of debt.  

Reply by
seanfay

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Helpful to 7 out of 7 people

I'd have to say false. It's not based on your credit report.  I have $28,000 in available credit and have zero balance on all credit cards. I have 2 car loans, 2 homes (1 is a rental). My credit history shows NO late payments on any accounts. I have no home insurance claims ever. I had an accident where someone hit me and his insurance paid for it 9 years ago. That's it.  I do have 6 hard inquires on my credit which is a "C" and I have "B" for lenght of credit. All other listings are in the "A" category. Stupid me cancelled Chase, my oldest account for their crappy service.

Thanks to Credit Karma's handy dandy tracker, every 7 days I'm credit score goes up, my home insurance score goes down. Like clock work. All my scores are in the top tier except for this one. 

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14 People Helped

Completely agree!

Helpful to 3 out of 4 people

I did not see this particular score until today. I assume it is relatively new since there is not even a description of how this score is defined where the other scores are listed.

Mine is also showing poor and I have good credit. It makes no sense to me whatsoever that your credit score would have anything to do at all with whether I'm more likely to make a claim on my homeowners' insurance. Seriously, I don't get how these are connected at all.

While we're discussing insurance, I have the same opinion on the auto insurance score. I am required, by law, to have insurance on my automobile. I have this insurance and I pay, on time (autodraft, no less) every month. If i DON'T pay, my insurance will lapse. So, what does my credit score have to do with auto insurance? Seriously stupid.

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Let me echo all of that

Helpful to 3 out of 5 people

My credit score (both TransUnion and Vantage) have steadily improved by a significant amount over the past two years.  When those scores were fair to poor, my auto and home insurance scores were "good".  With each increase in the general scores the auto and home drop.  It just doesn't make sense.  The home score has done more of a steep decline but how could they possible filter good credit into poor insurance risk?   I appreciate the article above.  Nice to know some advocates are protesting this.

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Read This on Low Insurance Scores

Helpful to 4 out of 7 people

How your credit history affects your home and car insurance rates

By Insure.com - Last updated: April 29, 2010

Read the Spanish version: ¿Como puede tu crédito afectar el precio de tu seguro de casa y auto?

Does having bad credit make you a bad driver or risky homeowner?

No, but your insurance company probably sees a correlation.

Many home and car insurance companies use your credit information, filtered through a formula to create an "insurance risk score," to determine how likely you are to file an insurance claim. Your premium bill could rise if you have a bad credit score, even if you haven't filed a claim.

According to the Insurance Information Institute (III), insurance companies use these risk scores to help differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming. Statistically, people who have a poor insurance score are more likely to file a claim, according to III.

Inside insurance risk scoring

A peak inside the "black box"

While Fair Isaac Corp. will not release the details of its insurance risk-scoring model to the public, spokesperson Craig Watts says that your credit score can give you an idea of your insurance risk score.

The five categories of

your credit score are:

  • Past payment history (approx. 35%)

    How you've paid your credit bills in the past, if your bills have been paid on time, items in collection, the number of "adverse public records" (bankruptcy, wage attachments, liens), and the number and length of delinquencies or items in collection.

  • Amount of credit owed (approx. 30%)

    How many accounts have balances, what kind of accounts they are and how close you are to your credit limits.

  • Length of time credit established (approx. 15%)

    How long you have had credit accounts and how long you have had specific accounts.

  • New credit (approx. 10%)

    Number and proportion of recently opened accounts, the number of credit inquiries, and the reestablishment of positive credit history after payment problems.

  • Types of credit established (approx. 10%)

    The number and activity of various types of credit accounts including credit cards, retail store accounts, installment loans, and mortgages.

Insurers place importance on the factors that show long-term stability, so by demonstrating responsible use of credit and keeping your balances low, you should be able to improve your insurance score. That could translate into lower insurance premiums if you've been impacted by a negative credit history in the past.

You can purchase your credit risk score, credit report and tips on how to improve your score at myFICO.com, from Fair Isaac Corp.

Insurance risk scores are similar to credit risk scores — used by lenders to determine whether or not to approve a loan or line of credit — because both look at your credit information, but the two are not the same thing, says Craig Watts, a spokesperson for Fair Isaac Corp. (FICO), whose insurance risk scores are used by roughly 300 insurers nationwide in calculating insurance quotes.

"Consumers are becoming more familiar with credit risk scoring, but insurance risk scoring is still fairly arcane," says Watts.

While both insurance scores and credit scores look at the same five characteristics of a person's credit report (see list at right), the data are weighted differently. This difference in weighting can swing 5 to 10 percent in each category.

"The biggest difference is that insurance risk scores look for stability, but credit risk scores look for a reliable pattern," says Watts. "Insurance scores are also more interested in how regularly you pay than in how much you already owe."

Insurers use these insurance scores to try to identify consumers who are consistent and reliable, as well as those who show a pattern of demonstrating common sense with money. Insurers say these people are less likely to file a claim on an insurance policy — thus costing the insurance company less money.

"We've studied millions of records and have found that there is a clear and reliable correlation between credit history and your risk of insurance loss relative to other consumers," says Watts.

According to the latest study by the Bureau of Business Research at the University of Texas, published in 2003, there's a strong correlation between credit history and the filing of an auto insurance claim. The study matched credit scores with claim data and found that people with bad credit scores had claim losses 53 percent higher than the average.

Allstate Insurance Co. and State Farm, the nation's two largest auto and home insurers, have also noted this correlation and have developed their own insurance risk-scoring systems that incorporate credit information.

Insurers say that using credit information allows them to price their products more fairly. The better your credit, the lower your premium.

"Study after study has shown that credit history can be correlated with the likelihood that someone will file a claim," says **** Luedke, a spokesperson for State Farm. "We don't claim to have the definitive answer as to why there is a correlation, but we believe one exists."

Luedke says that State Farm uses credit information in deciding whether or not to issue an insurance policy and points out that, in some cases, the use of credit information has allowed State Farm to cover people that wouldn't ordinarily have qualified.

"That would be somebody that didn't have good characteristics in their driving record or on previous claims but did have good credit characteristics," Luedke says. "If we didn't include that in the overall measurement of risk, we wouldn't have insured that person."

Correlations and explanations

The use of credit information to help set premiums and approve or deny coverage has its critics. Birny Birnbaum, executive director for the Center for Economic Justice, has testified before Congress on insurance credit scoring and outlined reasons it should be prohibited. He argues that credit-based insurance scores are arbitrary and unrelated to how well a consumer manages their finances and that scores penalize consumers due to the business decisions of lenders. He also says that 87 percent of family bankruptcies result from job loss, major medical bills and divorce.

"It is only in the cloistered world of insurance actuaries and executives that charging higher auto and homeowners insurance rates to someone who has suffered an economic or medical catastrophe is considered fair," he says.

Birnbaum also believes that credit scoring discriminates against poor and minority consumers. He cites a Missouri Department of Insurance study from 2004 that found that credit scores for minorities were consistently lower than scores for non-minorities.

While some critics acknowledge that credit information — which has been used by some insurers for more than a decade — can be useful to insurance companies for avoiding insurance fraud-motivated arson and similar hazards, they place little faith in computer-modeled insurance scores and statistical relationships. They also attack insurance risk scores because insurance companies won't divulge their methods for calculating insurance risk scores.

Alex M. Hageli, an expert on credit information issues at the Property Casualty Insurers Association of America, says that computer models used to generate insurance scores from credit information represent a tremendous investment of time and money for insurers.

"Some companies have developed their own models and others use third-party vendors' models. In either case, a lot of money has been poured into perfecting the model to allow companies to price better than their competitors, or in the case of competitors, to allow them to say their model is the best," Hageli says. "If everyone has access to everyone's algorithms, i.e. secret ingredients, then all that money is wasted."

Robert Hunter, the director of insurance for the Consumer Federation of America (CFA) and a former Texas Insurance Commissioner, finds this alarming.

"This is very disturbing — it's like a black box," he counters. "They haven't verified that minorities, people with disabilities, and the poor aren't discriminated against by these systems. Indeed, studies by Maryland and Texas seem to confirm that this is a problem."

According to Watts, insurance risk-scoring models do not discriminate. "In the studies we've done, we looked specifically at the scoring of low- to moderate-income and high minority areas," says Watts. "People in those areas score similarly to people from areas of higher income. We didn't see a pattern of indirect discrimination."

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Reply by
TheBattman

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245 People Helped
Helpful to 3 out of 4 people

What a pile of crap!  In our searching for homeowner's insurance for our new home, we were declined by one carrier specifically because of "low insurance score".

i have contacted our state insurance commissioner. He defended the use of scores, yet he made no effort to actually explain the scoring system. 

Again, I believe if insurers are allowed to use said scores, they should be bound by the same type of regulations as lenders under the fair credit reporting act.  Further, there should be information available so that consumers can grasp how the scores are calculated- so that we can understand how to improve said scores. 

The claims from the above article on how scores are obtained is incorrect, as we see patterns unfold here in this discussion, around the web, and in my personal experience. 

Reply by
schnookiedog

6 Contributions
13 People Helped
Helpful to 2 out of 3 people

How in the world can you improve your insurance score if you don't know how it is figured? Why such secrecy?

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7 People Helped

same position re: home insurance

Helpful to 2 out of 3 people

My credit is good, bordering on excellent.  Vantage score is a B, bordering on an A.   Auto is only fair and Home is poor.  I have no home insurance claims for 10+ years.  There is NO CONSISTENCY so what is the point of them listing?  Perhaps it IS experimental but it us utterly useless if they cannot tie it into actual credit scores.

More frustrating is there is no way to contact credit Karma to question, let alone get it resolved.

1 Contribution
4 People Helped

Home insurance

Helpful to 4 out of 7 people

I Am also frustrated i am confused as to why my score is low when i have never had home insurance or renters insurance so how is this impacting my score??

6 Contributions
13 People Helped

Home Insurance Credit Score

It looks like it is based on what you owe on your secured property. In my case, I had a good home insurance score until I bought a new car.  The score dipped then, again when I bought another car, and plummeted when I bought furniture on credit. When I paid the furniture off early, my score went from poor to fair. So it appears that I need to pay my cars off in order for the score to return to very good. Looks like the more property you have with outstanding balances, especially cars that depreciate, the greater the chance of you filing a costly claim against your property (and the greater your loss would be as opposed to paid off property). In a way that makes sense. Why cars would factor into home insurance, I couldn't tell you.

Reply by
MeadeRob

1 Contribution
0 People Helped

This doesn't make much sense. I have good credit, I don't own a home nor have any insurance other than auto insurance and have never made a claim since havin it for the past 5 years. Despite this my score goes up and down consistently every month, even though my credit has been steady with no downward movement just steady upward growth. However, one month home insurance will be good and the next it will be in the dirt. 

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