The Use of Credit Score:

Paying double the national average, South Floridians face the highest homeowner insurance rates in the nation, and these rates are rising relentlessly. As a result, homeowners are constantly looking for ways to reduce their premiums; one method is to leverage their credit scores to achieve discounts on their rates. Credit scoring by insurance companies has been a hotly debated topic over the last decade. Proponents argue that the credit score is an accurate metric for measuring risk, while opponents assert that credit scoring negatively impacts the availability and affordability of insurance, especially for the poor and minorities. The former Florida Insurance Commissioner, Kevin McCarthy, spent much of his career crusading against credit scoring’s use in insurance, but his retirement may bring the topic to the limelight once again.

In many parts of the United States, the costs homeowners can expect to pay for their insurance is strongly correlated with their credit scores. In general, the lower the credit scores, the higher the premiums. For instance, if a homeowner’s credit score is downgraded from excellent to fair, their homeowner premium can sharply increase by up to 50% of their original value. Florida is peculiar in that studies have shown that there is no correlation between credit score and insurance costs, however as many South Floridian’s are reporting, this is not quite the case.

Credit Scoring in Florida:

Frequent tropical storms and hurricanes ensure that insurance rates are exorbitantly expensive, and this was by and large a significant reason why many companies avoided using credit scores to justify raising rates even further. In addition, it must be noted that Florida law allows for the use of credit scoring in all cases except hurricane insurance, which is frequently the most expensive component of an insurance plan. However, the past decade has shown a change in form: more and more companies are now experimenting with credit scoring. While the majority of insurance companies are abstaining from the practice, the two largest firms do – Heritage Property & Casualty and Universal Property & Casualty. Together, these companies cover roughly 20% of the homes in the South Florida area.

In order to remain competitive, these companies do not spike prices due to low credit score, but offer discounts to those with good credit. This serves two purposes: making premiums more affordable and making credit scoring a lot more palatable. As more and more companies begin to use credit scores, the ramification is clear: in Florida, those who have good credit will simply pay lower premiums than those who do not.

Keeping Credit Scores High:

            In order to achieve the lowest rates possible, it is in the best interest of homeowners to keep their credit scores high. Here are some of our tips to boost your credit score:

  • Pay all of your debts and loans on time.
  • Only open credit accounts if absolutely necessary.
  • Keep credit card balances as low as possible, aim for 25% of your credit limit.
  • Shop around, find affordable policies within your budget.

There is no quick way to fix a credit score. Short term schemes easily backfire, so it is important that credit is managed responsibly over time. Over time with dedication and responsibility, scores will increase, which directly correlates to better financial stability.