Insurance companies set rates for renters insurance based on several factors, including a property’s location, the value of its contents, specific hazards associated with the area, and safety features that can minimize risk. Insurers also take an applicant’s credit history into consideration when setting premiums.
How Are a Credit Score and a Credit-Based Insurance Score Different?
These two types of scores serve different purposes. A credit score helps a creditor predict how likely you would be to miss payments, while a credit-based insurance score helps an insurer predict how likely you would be to file a claim.
If you apply for a loan or a credit card, a financial institution will check your credit score to determine how risky it would be to extend credit to you. A creditor wants to be relatively confident that you would repay a loan or make at least the minimum monthly payments on a credit card. It will decide whether to grant you credit and set your interest rate based on your credit score.
Insurers use a credit-based insurance score to figure out how likely you would be to file a claim. A company can then set premiums based on a loss ratio so it can avoid paying out more in claims than it collects in premiums.
A high credit-based insurance score means you would be less likely to file a claim than someone with a lower score. An insurer will therefore charge you lower premiums than a person with a lower score. Not all states allow insurers to use credit-based insurance scores when setting rates.
How Is a Credit-Based Insurance Score Calculated?
Credit-based insurance scores fall along ranges that are different than the ranges used to report credit scores. Multiple companies generate credit-based insurance scores, and their ranges differ from each other.
You can’t check your own credit-based insurance scores the way you can check your credit scores, but you can assume that they’re similar since they’re based on a lot of the same information. If you have an established credit history, pay your bills on time, keep your credit card balances low relative to your total credit limits, and don’t apply for credit several times in a short period, it’s likely that both your credit scores and your credit-based insurance scores will be high.
Compare Quotes for Renters Insurance
Credit-based insurance scores are one of several factors that insurers use when setting premiums. Each insurance company has its own policies and ways of determining rates. If you need renters insurance, contact Petruzelo Insurance. We can help you compare quotes from several top insurers.