homeowners insurance: credit score vs. insurance score

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Most people know what a credit score is, but did you know that you have an insurance score too? Both may contribute to what you pay for homeowners coverage, so it helps to know the difference between the 2 — and how they're connected. Here, we explore credit scores vs. insurance scores and explain how they affect your premium.

what’s the difference between a credit score and an insurance score?

Just like your credit score, an insurance score is determined by a statistical model that assigns positive and negative values to certain, specific info on your credit report. The values are run through a complex algorithm that computes a single score, and voila, a credit score (or an insurance score) is born.

But unlike your credit score — which is calculated almost solely by credit bureaus and credit-score companies like FICO — your insurance score can be determined by your home insurer's own data and scoring model, by one of the 3 major credit bureaus, or by a third-party company's model.

There are also a couple other key differences between the scores.

The factors that go into each score

Credit bureaus consider things like the amount of debt you have, payment history, the number of accounts you have, and the length of time you've had credit to help calculate your credit score.

Your home insurance score — while taking the above factors into account — can also weigh in things like your insurance claim history, whether your home has various safety features like fire alarms, and more. It all depends on what scoring model your home insurer uses.

Some factors that can't be considered when establishing a credit-based insurance score include:

  • Race, ethnicity, or nationality
  • Religion
  • Gender or age
  • Marital status
  • Income, occupation, or employment history
  • Your home's location
  • Any information not found on the credit report

Why the scores are used

While a credit score is used by various financial institutions and other entities (like your landlord) to predict how likely you are to pay back debts and make payments on time, an insurance score can help insurers gauge the financial risk you present to the company — that is, how likely you are to file a claim).

Because each score is used for different reasons in different ways, your homeowners insurance score weighs certain credit-report factors more or less heavily than how your credit score weighs them.

Since an insurance score incorporates factors from your credit report, you'll often see it referred to as a "credit-based insurance score."

how does an insurance score affect my homeowners insurance?

About 85 percent of home insurers use credit-based insurance scores as rating factors in the states that allow it, according to FICO. That's because actuarial studies show that a person's financial affairs are generally a good indicator of how likely they'll file an insurance claim. Therefore, a person who has a higher insurance score is statistically less likely to file claims (and vice versa).

And since insurance companies (including Esurance) love when you stay claim-free, you're often rewarded with lower premiums on your home coverage. The more you avoid claims and other financial risks, the higher your insurance score gets — which usually means lower rates over time.

But your credit-based home insurance score is by no means the sole factor upon which your rates are decided. In fact, most states have laws that ensure your score isn't the only basis for increasing your rates, or denying, canceling, or not renewing your coverage.

The fact is, there are a handful of factors that go into determining your homeowners insurance rates — and your credit-based insurance score is just one of them.

If you're an Esurance policyholder and have questions about how we use insurance scores in relation to your homeowners coverage, feel free to give us a ring at 1-866-439-5633. Our agents are available at these times to help and answer any questions you may have.

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We know this insurance stuff can be tedious and, at times, complicated. That's why every policy from Esurance is designed to save you time, money, and hassle.

On top of already affordable rates, we offer a wide variety of money-saving discounts and an array of coverages that help you safeguard your home, personal liability, valuables, and so much more.

You can check out all the perks of joining our family when you get your free homeowners quote online in just a few minutes, or by giving us a ring at 1-866-439-5633 — where we're here to help at these times.

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