If your credit rating is good and the location of your house is not prone to floods, storms and earthquake, you will not have a problem in buying a house insurance. But if you have a bad credit rating, it could be difficult for you to find a home insurance company that would sell you house insurance.
You might find an insurance firm that will insure your house, but home insurance rates would be very costly. Homeowners classified by house insurance companies as risky are leaving many homeowners without financial support in case their houses are damaged or lost to flood, storm and other disasters.
For homeowners who have bad credit ratings, getting a house insurance would be almost impossible. What will be available to them are insurance policies called no credit check house insurance or high risk home insurances. These types of house insurance require high premiums because of the high level of risk involved.
If you are not sure about your credit score and your credit history, ask for your credit report from one of the three largest credit rating agencies. Your credit report will contain information about your payment behavior, your address and whether you have been sued or arrested and whether you have filed for bankruptcy. The Fair Credit Reporting Act gives anyone the right to have free access to his or her credit report.
Why do house insurance companies check the credit score of homeowners wanting to buy house insurance? The answer rests in the fact that financial stability of a person is related to risk. Insurance companies have found from studying their insurance claims and credit ratings that people who have lower credit scores are more likely to file home insurance claims, magnify claims or make fraudulent house insurance claims.
However, home insurance companies do not categorically say that people with bad credit ratings make false claims or make frequent claims. The industry just classifies people with bad credit and groups them with the high-risk group. The Insurance Information Institute said insurance ratings do not predict what insured people do in relations to home insurance claims. What they predict is the common behavior of a certain group of insured people with similar credit histories and scores.
Finally, prospective home owners insurance clients may also be classed as high risk if their homes are in areas prone to disasters like storms, tornadoes and wildfires or in areas with higher crime rates.