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Why Do Insurance Companies Check Your Credit Score?

Many homeowners are surprised to learn that insurance companies check their credit scores. They do this in order to calculate a term known as an “insurance score” which is a ranking that takes into account a person’s credit history and score.

Why do they analyze my credit score?

Studies have shown for many years that there is a direct correlation between homeowners with lower credit scores and the likelihood that they will file an insurance claim. Insurance companies then charge higher premiums to customers with lower credit scores because they are more likely to file a claim and therefore are riskier to the company. On the other hand, customers with higher credit scores are more likely to pay their insurance premiums on time since a higher credit score is attained by making timely payments.

You might have encountered a similar process with your mortgage qualification. The lower your credit score is, the higher the interest rate will be for your loan. This reasoning is similar to the insurance company’s because the mortgage lender considers those with a negative credit history to be less likely to make timely payments or pay back their mortgage loan entirely, making them a bigger risk.

However, those who already have healthy credit habits and a credit score that reflects those habits will benefit from a process like this because insurance companies will see them as less risky and will therefore charge lower premiums. Rather than having an average rate for every person – with subsidized premiums – rating the individual risk levels of each customer allows for more appropriate rates.

What if my credit score isn’t good?

For homeowners with less than ideal credit scores, don’t worry. There are still plenty of ways to lower your insurance premiums. One way is by maintaining your home, so that you don’t have to file claims that could be avoided. You can repair your roof so that wind damage is prevented, and you can fix broken steps to avoid others being injured and potentially starting a lawsuit. Some insurance companies will offer discounts for customers who go a certain amount of time without filing claims. Of course, don’t avoid filing a claim if you need to.) Another way to lower your insurance premium is by making your home safer by installing alarms and security systems. This makes your home less likely to be damaged or broken into, and many insurance companies will offer discounts for installing systems for that reason.

You can also begin to improve your credit score by making sure that you pay all bills on time, especially for things like mortgages and car loans. Timely payments can improve your score way more than you would expect, which can benefit you in many different ways, not just insurance savings.


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