Last week we got a letter in the mail from American Family, our home and auto insurer. Turns out they use our credit info as part of the rating factor for our home owners insurance. I’m not sure if they’ve always done this, but we’ve never gotten a letter like this before… Anyway, the letter said that “based on our review of your credit information, you did not receive our lowest insurance rate, which is considered unfavorable to you.” (no kidding – that’s unfavorable?). The letter also says they use credit reports “because an individual’s credit information is a good indicator of a person’s likelihood of filing future claims…” In the four years since we bought our house, we have never filed a claim. Even the time the washing machine overflowed and we had to tear out the bathroom floor, the garage ceiling, and all the insulation around the furnace ducts in the garage… we didn’t file a claim with our insurance company. We did the work ourselves, including tearing out insulation and wet drywall until 3 am. We found industrial quality tile from a surplus distributor (67 cents/sq. foot, versus the $5.50/sq.foot retail value – they had 200 sq feet left over from a big job, and we only needed about 70 sq. feet. So there is a silver lining to having your washing machine overflow onto your ugly yellow linoleum floor). Since we did the work ourselves, all we paid for was new insulation (about $40), new drywall for half the garage ceiling (about $45), and the tile ($100, including the backer board, grout and supplies).
I wonder how accurate their claim is that a credit history determines how likely someone is to file a claim on their homeowner’s policy? I’m sure they’re not making it up, I just wonder how big the correlation is. I guess it does make sense that someone who is totally irresponsible when it comes to paying bills on time might also be irresponsible about leaving a candle burning unattended.
In our case, the letter says that the bad things on our credit report are: Insufficient length of credit history (we both got credit cards at least 10 years ago, and have continued to build our credit ever since without any blemishes… how long do they keep holding this one against us?), and Proportion of revolving balances to revolving credit limits is too high, or there are no revolving credit accounts (I don’t really understand this one, as we’ve paid off all but one credit card, so our total revolving balance is about 3 grand, while our total revolving credit limit is probably close to 40 grand). Luckily for us, the nice people at American Family provided a phone number where we can reach TransUnion with questions or to obtain a copy of our credit report. When I call the number, I’m informed that it is not a working number. Sweet.
We got the bill for our homeowners policy last week aswell: $554. I went back and looked at last year’s bill: $587. And they’ve updated our coverage limits and added $11,000 to the insured amount for our house. So we’re getting more coverage for less money this year. So although it would be great to get the best price based on our credit history, I’m not going to complain. And it seems that the “problems” with our credit score aren’t things we can just fix. Maybe in 5 years they won’t say that we have insufficient length of credit history?
I consider myself pretty well educated in personal finance. But I didn’t know that homeowners insurance rates vary depending on credit history. Who da thunk it? And I’m even in the insurance industry, although I work in health insurance, where credit scores are not an issue. So now I know. And so do you.