Savvy consumers know it’s important to keep track of their credit histories and FICO scores in order to safeguard their ability to borrow money. But many have never heard of CLUE, a similar rating system that can determine whether you’re eligible for homeowners insurance, and at what price.
In the worst cases, homebuyers have been denied insurance because the property’s record has been marred by claims filed by a previous owner. A bad score can make it harder to sell your home if the prospective buyer cannot get insurance or finds the home too expensive.
Some consumer groups have complained about the system, and some states have partially restricted its use. But the Comprehensive Loss Underwriting Exchange is a fact of life. The privately run electronic database compiles information on insurance claims gathered by participating insurance companies. Claims adjusters can even report instances in which the homeowners inquired about a claim but did not file one, and this puts a black mark on the records of the policy holder and property.
Insurers say their research shows that people who have filed claims in the past are more likely to do so in the future, and that a home on which claims have been filed is more likely to have future claims even if it has been sold to someone else. Reports contain history for the past five years.
So if you are selling a home, or shopping around for homeowner’s insurance, order a free copy of your property report. If you are buying a home, get the seller to provide the report, which is available only to the property owner.
The report includes instructions on disputing data it contains, as well as appending an explanation to any negative information in the document.
Since mortgage lenders require borrowers to have homeowners insurance, the National Association of Realtors suggests homebuyers take several steps to make sure they get insurance before closing on a home purchase, and to keep the cost as low as possible:
- In your purchase contract, make the sale contingent on a final inspection to determine that problems cited in the CLUE report have been corrected. Mold, for example, is a common problem.
- Apply for insurance as soon as your purchase offer is accepted, as your lender will require that you have homeowners insurance as a condition of approving the loan.
- Do all that you can to maintain good credit, and be certain your credit history is accurate. Many insurers now consider credit scores in determining whether to approve a policy and to set the price. They say applicants with good credit are less likely to file claims.
- Consider using the same insurer for your homeowner and auto policies. This may entitle you to a discount.
- Raise your deductible. If you agree to pay the first $1,000 in damages, instead of just the first $250, the policy will be cheaper.
Of course it always pays to shop around, rather than settle on an insurer recommended by your real estate agent or lender. Use the BankingMyWay shopping tool to unearth the cheapest policy.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.