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How your credit score affects your home insurance

Not everyone in Cincinnati pays the same rate on their homeowners insurance. You probably already knew that. Did you know, however, that two people with the same policy could pay very different amounts based purely on their credit history?

How insurance companies determine your credit score

You might be surprised to learn that most insurance companies score their customers based on their credit history. The better your score, the less expensive your premium is likely to be. This practice is based on studies that have found a correlation between poor credit and a high likelihood of filing an insurance claim.

When giving you a credit-based score, insurance companies consider several factors, including:

  • How long your credit history is
  • Whether you have filed for bankruptcy
  • Any outstanding debt you have
  • Any collections actions against you
  • Any late payments

Bad credit means higher premiums

If your credit score is OK - meaning it is not terrible but not stellar - your home insurance premiums could be 32 percent higher than someone who has exceptional credit, according to a recent report. If your credit is poor, however, your premiums could be double what someone with excellent credit pays.

Although some people disagree with this practice, arguing that the link between credit scores and claims is not causal, insurance companies are not likely to change their ways anytime soon.

What to do if you have bad credit

If you have poor credit, you may be feeling worried at this point - or wondering if you have a higher premium than others. While it is possible that you do, you can take things into your own hands by working to improve your credit score. Consider the following tips:

  • Pay your bills on time.
  • Don't overdo it on your credit card. Keeping your balances to 25 percent of your limit or less can help you maintain control.
  • Avoid starting new credit accounts.

While these tips can help improve your credit score over time, they will not change your rating overnight. If you think you are paying too much for your home insurance, consider looking elsewhere. Not all insurers use credit history the same way.

If you in serious debt and having trouble getting out, it may be worthwhile to speak with an attorney. A lawyer can help you better understand possible debt-relief options that can get you back on your feet while protecting your many of your assets.

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