You’re probably already aware that credit scores are a
major factor when you’re buying a Lexington home, because your credit score
affects the interest rate you get on your mortgage. Considering how big
home loans are, a few credit score points could translate into a slightly
higher rate, which ultimately can add up to thousands of dollars in interest
over the life of the loan.
Of course, there are many more expenses that come with
buying a house than taking out a mortgage. Pretty much everyone takes out homeowners
insurance, which can—on average—tack on nearly $100 or so to your monthly
homeownership expenses. On top of that, you could be paying higher insurance premiums
just because you don’t have a good credit score (here’s an explanation of what qualifies
as a “good” credit score).
Across the U.S., homeowners might pay 32% more in annual
homeowners insurance premiums if they have fair credit, as opposed to excellent
credit, according to a survey from InsuranceQuotes.com.
If you have poor credit, your homeowners insurance can cost
twice as much as it would if you had excellent credit. Most states allow
insurance underwriters to consider credit history when determining home
insurance premiums, though California, Maryland, and Massachusetts do not. In
38 states, plus Washington, DC, people with poor credit pay, on average, twice
as much for homeowners insurance as they would if they had excellent credit.
“It’s hard to fathom that bad credit would justify such
steep rates on homeowners insurance, but it often is a factor and clearly can
be an important one,” said Gerri Detweiler, Credit.com’s director of consumer
education. “When I bought my current home a number of years ago, I was told I
didn’t get the largest discount for my homeowners insurance due to my credit
score, even though I had very little debt and a clean payment history. So I can
relate to homeowners who are really frustrated by this practice.”
Insurance underwriters generally use credit-based
insurance scores, according to the report from InsuranceQuotes.com, and those
scores are based on credit report data such as outstanding debt,
length of credit history, late payments, collection accounts, bankruptcy, and
credit applications.
There are many expenses that come with being a
homeowner, so anything you can do to keep the costs down will likely add up to
a lot of savings in the long run. If you didn’t get the lowest rates, consider
asking your insurer to reassess your premium after you’ve had time to improve
your credit after buying a home. You could also shop around for a new policy as
a money-saving tactic, because underwriting practices vary by insurer.
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