How Credit Score Affects Home Insurance Premium?

Posted on: Jan 31, 2023 | | Written by:

How Credit Score Affects Home Insurance Premium?

Published on January 31, 2023. EST READ TIME: 3 minutes

Securing your home with homeowner’s insurance is as important as getting personal health coverage to safeguard yourself from medical emergencies. Home insurance gives you peace of mind by ensuring you are covered against losses and damages to your property due to man-made hazards or natural disasters. When you choose your home insurance plan, the sum insured and your premiums are calculated depending on many factors. Some of them are:

• The location of your house

• Amount of coverage

• Age of the structure

• Security measures

• The size of your house

• Additional coverage

• Valuables present inside the house

• Occupation of the insurer

However, another important factor that is taken into account is your credit score.

You might have heard these two words often in context to financial transactions. So, how does credit score affect property insurance rates? Let’s understand.

What is a credit score?

For the uninitiated, a credit score is a score that determines how trustworthy you are with your financial transactions. In India, credit score or CIBIL score is used interchangeably, where CIBIL stands for Credit Information Bureau India Limited. It is an Indian rating bureau with access to all your financial transactions or credit history – regarding any amount borrowed/loaned or repaid. This CIBIL score is a three-digit score that ranges from 300 to 900. A good CIBIL score ranges between 700 to 900, which indicates that you are paying your EMIs, bills or premiums on time. It also makes it easier for you to get a higher loan for a low-interest rate.

Why does it matter?

The credit score gives banks and other financial institutions an idea of how responsible you are with the money you borrow and how timely you repay it. This determines how eligible you will be for the loan that you apply for and how your interest rates will be charged. A credit score of less than 700 can make it difficult for you to get a loan or negotiate low premium rates against sum insured.

What factors affect your credit score?

Some of the factors that can affect your credit score are:

• Too much debt during a short period

• Incapability to repay loans or bills on time

• Defaulting EMIs

Home insurance and credit score

So, coming back to our question if credit score affects your property insurance rates? In short, yes, it does. While applying for home insurance, your insurance company will run a financial background check that will delve deep into your credit score. Experts believe there is a correlation between your credit score and the likeliness to place a home insurance claim.

Suppose you have maintained a higher credit score, in that case, it gives the insurance company an impression that you manage your finances well and can pay your premiums on time without defaulting too many times. It also indicates that you are likely to make timely repairs and reworks to maintain your property. This helps an insurance company put their trust in you while working out a home insurance premium.

So, a good credit score will could help you get low premium rates for the sum insured against your property whereas a bad credit score, increases your chances of paying a high premium for the sum insured. However, how much premium you will pay against a sum insured depends on the insurance company and its practices too.

Why is your credit score important?

First, understand that credit score is one of the many components that can affect your home insurance premium. It also reflects how disciplined you are with your finances and how well equipped you are to repay your loans and premiums. It helps the insurance companies to assess how much risks they can take by calculating a low premium rate for you.

How to improve your credit score?

If you are looking to improve your credit score to work out a better home insurance premium rate, here are a few things you can do:

• Pay your household bills on time each month.

• Pay your EMIs on the scheduled date each month and avoid late payments.

• Pay your credit card balance — ideally in full — on time every month, and try not to utilise your total credit limit.

• Don’t open too many credit lines or subscribe for pay later options with various service providers, especially if you cannot pay on time.

• Check your credit report regularly, and resolve any errors or discrepancies you discover.

At a glance:

Here is how insurance companies view your credit score:

Cibil Score	Ratings and understandings
300 - 500	Poor. It might affect your ability to get a loan from any bank. Availing home insurance is likely difficult.
500 - 700	Average. Insurance companies might take a call after some scrutiny before granting a home insurance as this score as this score would label one as a risky investment.
700 - 750	Good. An insurance company might do further investigation before calculating a home insurance premium that suits you.
750 - 850	Good. This score gives people an edge to negotiate better premium rates for home insurance.
850 - 900	Excellent. This score can help you get low rates on home insurance premium.

Wrap it up:

So, to conclude the discussion, your credit score affects your home insurance to a great extent. A higher credit score can help one get a low premium rate on home insurance . There are ways in which one can improve the credit score and work on a low premium rate with the insurance company.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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