Your Credit Score – Can Cost You Dearly!

For years ReCasa Financial Group associates have been preaching the importance of credit scores to our current and prospective clients.   From our perspective, the credit score is a real estate investor’s most important asset!

your credit score and real estate investing

Most understand how a credit score can impact the cost and availability of loans.  However, many do not realize that credit scores impact several other areas including insurance.

Credit scores are used by insurance companies in their decision making process to approve or renew policies and to set premiums if they do approve the client and their property.   You can be declined for insurance, just like a loan, if your score does not meet the provider’s criteria.

Insurance companies are experts at analyzing data.  They have found a strong correlation between credit scores and claims.   Simply put, clients with poor credit file more claims than those with strong credit scores.  Insurers figure that if you are responsible when handling your financial matters then you will take better care of problems with your home or car that may lead to a higher probability of filing a claim.  Think of a leaky roof and what type of damage that could lead to if not repaired immediately.

Many investors use loans to finance their real estate holdings.  The lenders require insurance.  The premium or cost of insurance can be dramatically impacted by your credit score, up to 40% in some instances.   Paying higher rates impact real estate investors dramatically since they may hold 5, 10, 50 properties that require insurance.

There are number of factors that insurers use to determine the premiums or rates they will charge a client and they can be very different for each carrier.  But, they are consistent in one way.  Even if you have a perfect record and have not filed a claim in years, or ever, but your credit score declines you could be faced with large increases for renewal and could be declined for auto, home and real estate coverage.

Purchasers of insurance may not agree or like the insurance carrier’s inclusion of credit scores in their analysis of risk.  Numbers don’t lie.  There is a higher probability that people with credit issues will file more claims or even false claims.

Protect your credit score!  The exponential cost of higher interest rates for loans and insurance premiums for multiple properties makes that score even more valuable for real estate investors than the normal consumer.