When you call Effective Coverage for a new policy, you hear some information about consumer reports being used in the rating and underwriting of insurance. That leads us to a common question,
How does credit affect renters insurance? Why do you need to obtain consumer reports for insurance? Will this be an inquiry on my credit?
All great questions and all things we are asked frequently, so let’s take a look…
How Does My Credit Score Impact Renters Insurance?
People often want to know why they didn’t get the same price as their neighbor. Often, that has to do with differing credit scores. Learn more from the insurance experts for renters.
How Does Credit Affect Renters Insurance?
Renters insurance is rated on a variety of factors. Of course, location plays into it, as does previous claims history. But, one of the often overlooked factors is credit. In most states, credit-based insurance scores can be and are used in the process of determining renters insurance rates. There are a few reasons it matters, but first…
What Is A Credit-Based Insurance Score?
A credit-based insurance score is a number derived from your credit history. It’s not the FICO score that you’re used to seeing, and it’s not the same between all carriers. Different insurance companies rely on slightly different factors in the insurance score, depending on what type of market they’re targeting. For example, one major carrier has 35 tiers of credit that someone could fall into. The credit-based insurance score is obtained by assigning values to certain types of credit events.
Why Does Credit Affect Insurance?
There’s a proven correlation between negative credit events and certain kinds of claims. It’s just another predictive factor that can be used along with things like location and previous loss experience in the same general area. That correlation can also be seen in our post about how insurance companies detect fraud.
It’s also worth noting that insurance companies set rates based on the amount of money they expect to take in over twelve months, the amount of money they expect to pay out, how their investments are anticipated to perform, and several other factors. Those calculations are thrown into disarray when a policy cancels for non-payment a few months after inception. Higher rates may help compensate for this, to ensure that funds are available for all claims to be paid even if a policy cancels midterm for non-payment.
Does Getting An Insurance Quote Affect My Credit?
No. The inquiries are not the same type as when you apply for credit, and they won’t impact your FICO score. We often get this question from people trying to get a mortgage, who worry about every single point on their credit score. It’s not something that will impact the mortgage process. Besides, when you’re getting a mortgage or auto loan, there’s a period of time where you can have all the inquiries you want that are related to the same type of loan, because it’s assumed that people will shop around. Quoting insurance doesn’t impact your credit.
For more information on renters insurance credit-based insurance scores, or to find out about policies that might not assign as much weight to credit, contact Effective Coverage today at (800)892-4308 or click above for online renters insurance quotes.