Everyone knows that when financing a home, having an optimal credit score is essential. However, even if a buyer has cleared approval for a mortgage or home loan, his or her credit score follows into the arena of homeowner's insurance. Homeowners with poor credit pay 91 percent more for insurance than those with excellent credit, so chipping away at improving your personal credit score can lead to lower premiums for the same coverage.
The rationale behind factoring credit into a homeowners' policy is simple: statistically, people with bad credit are often a greater risk to file claims than people who maintain healthier scores.
"There's a direct correlation between someone with a low credit score and the frequency of claims," Keith Moore, Chief Executive of CoverHound, told Fox Business. "Someone with a credit score of 500 not only lets bills slip but also the general maintenance of the home, which leads to claims."
Insurance providers' emphasis on credit scores varies by state, and while the national average is 91 percent greater, homeowners who have poor credit in West Virginia pay 208 percent more than what their better-rated counterparts do. In Ohio, that figure stands at 185 percent, and in Washington, D.C., 182 percent, according to Insurance Journal.
However, home buyers in California, Massachusetts and Maryland are provided a break from the metric, as governments prohibit insurance providers from factoring personal credit into rates and coverage. Consumers who apply for insurance with excellent credit should take care to maintain their standing, as rates are likely to increase by as much as 65 percent if their rating is reduced to "fair."
As with most areas of your financial life, knowing your credit score and building good credit can be the key to big savings on insurance.