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Homeowners insurance for people with bad credit
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What To Know First
Though it may sound surprising, in most states, your credit-based insurance score can play a significant role in how much you pay for home insurance.
On This Page
- Why does having bad credit affect your home insurance cost?
- How does credit affect your home insurance rates?
- Best home insurance companies for bad credit
- Can you get cheap homeowners insurance with bad credit?
- How to improve your credit score for better home insurance rates
- Frequently asked questions
- Homeowners with lower credit scores often pay higher home insurance premiums because they tend to file more claims than those with higher credit scores.
- USAA, Nationwide and ASI Progressive offer some of the cheapest home insurance on average for people with poor credit, based on Bankrate’s analysis.
- California, Maryland and Massachusetts ban the use of credit as a rating factor for homeowners insurance.
Studies have shown that people with higher credit scores file fewer claims than those with lower scores, which means information about your credit can provide a reasonable indicator for insurers to judge risk. Unless you live in California, Maryland or Massachusetts, the states that ban insurers from using credit data to calculate home insurance premiums, it’s important to understand how credit could impact your home insurance premiums and coverage options. Bankrate’s insurance editorial team explains how your credit could affect what you pay for home insurance so you can be better prepared as you search for homeowners insurance.
Why does having bad credit affect your home insurance cost?
Insurance companies base the premiums they charge on the risk that you’ll file a claim. If you’re more likely to file a claim and ask the insurance company to pay out on the policy, the higher your premium is likely to be.
Credit histories are commonly used by lenders as a way to gauge risk, and data shows that they can also be an effective tool for estimating the risk of someone filing an insurance claim. Insurers use the information on your credit report to generate an insurance score (in states where this practice is allowed). An insurance score is derived from information on your credit report but is not the same as your actual credit score.
Your credit score is a measure of how likely you are to default on a loan, while credit-based insurance scores are a measure of how likely you are to file a claim. Additionally, each insurance company has its own formulation for displaying your credit-based insurance score. Companies may use a mix of numbers and letters, for example, to further differentiate your credit-based insurance score from your credit score and to protect your privacy.
Your insurance score might indicate your likelihood to:
- File claims: Carriers have found a connection between lower credit scores and a higher chance of filing a homeowners insurance claim, which can make someone with a lower credit score riskier to insure.
- Maintain your property: Insurance carriers often consider someone with a higher credit score more likely to regularly maintain their property. Therefore, the condition of the home is likely to be better, which may lessen the risk of claims.
- Pay bills on time: Although many home insurance policies are paid from a mortgage escrow account, some homeowners pay their premiums themselves. Policyholders with higher credit scores are typically viewed as being more likely to pay on time.
Credit histories are not used as a rating factor in all states. The following states ban the use of credit when rating home insurance policies, meaning your credit tier cannot affect how much you pay for homeowners insurance:
How does credit affect your home insurance rates?
Generally, the higher your credit rating, the lower your insurance premium will be. Other factors, like the age and condition of your home, deductible amount, local crime history and claims history also play a role.
Though your credit score — or credit-based insurance score — is not the only rating factor, it can be an important one. Our research revealed that policyholders with poor credit histories pay over 63 percent more for home insurance on average than policyholders with excellent credit.
This table illustrates the average annual home insurance premium for $250,000 in dwelling coverage for each of the four credit rating tiers.
|Poor credit||Average credit||Good credit||Excellent credit|
|Average annual premium||$3,274||$1,571||$1,428||$1,207|
Best home insurance companies for bad credit
In most states, insurers will use your insurance-based credit score when determining your insurance premiums. However, how big a role your credit plays in your eventual insurance costs varies from company to company. Because each insurer has its own algorithm for pricing, some weigh your credit heavily while others are less concerned.
Based on our analysis of average premium data from Quadrant Information Services, the cheapest homeowners insurance companies for those with bad credit include USAA and Nationwide. Keep in mind that USAA is only available to active duty military, veterans and qualifying family members. ASI shows the smallest premium increase on average for people with poor credit.
We’ve also included our Bankrate Scores for each provider, which go beyond average premiums and also take into account things like coverage options, third-party scores and ratings for customer satisfaction and financial strength and digital presence. Each provider is scored out of a possible five points, and each Bankrate Score may help you quickly compare and identify some companies you want to check out as you start your search for a policy.
|Insurance comapny||Bankrate Score||Avg. annual premium with good credit||Avg. annual premium with poor credit||Avg. premium increase|
Can you get cheap homeowners insurance with bad credit?
Even if you have bad credit, you may still be able to find cheap homeowners insurance. Consider some of these suggestions, which may help you find a good deal regardless of your credit score.
- Shop around and compare quotes: One of the best ways to save money whenever you’re shopping for a product or service is to shop around and compare prices. Make sure that you request quotes from several home insurance carriers for the same coverage types and levels. As you compare quoted prices, also consider what else is important to you before you decide which company is the right one for you
- Review available discounts: Many insurers offer potential discounts on premiums if you qualify. Common discount opportunities include bundling your home and auto insurance policies, installing safety devices like smoke alarms, fire extinguishers and security systems or installing smart home devices.
- Improve your credit score: Because your credit score impacts your premiums in most cases, you might save money by improving your credit over time. When it comes time to renew, you might see premiums drop if your score has gone up. However, keep in mind that residents of California, Maryland or Massachusetts won’t see any premium changes from boosting their credit.
Speaking with a licensed insurance agent might help you decide on the best overall strategy to save on your home insurance if you aren’t sure where to start.
How to improve your credit score for better home insurance rates
While repairing bad credit may seem daunting, there are several tactics you can use to potentially improve your credit score. You might be able to improve your credit score by:
- Making payments on time: Your payment hisory is the most important factor in determining your credit score. One late payment can cause a big drop, so do your best to pay every bill by its due date.
- Utilizing less of your available credit: Maxing out your credit cards is bad for your credit. Aim to use no more than 30 percent of your available credit to keep your credit score as high as possible.
- Checking your report for errors: Credit bureaus aren’t perfect and may accidentally put inaccurate information in your report. Removing those errors could boost your score. By law, you can request three free credit reports each year, giving you a chance to monitor your credit for issues.
- Minimizing hard credit checks: Credit checks can either be hard checks or soft checks. Soft pulls happen when your credit is requested for an informational purpose, such as by a credit monitoring service or when you ask for an insurance quote. Hard checks typically happen when you apply for new loans or credit cards. Each hard credit check drops your score by a few points, so you may want to avoid applying for loans or credit too often.
Frequently asked questions
Bankrate utilizes Quadrant Information Services to analyze 2023 current rates for ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on 40-year-old male and female homeowners with a clean claim history, good credit and the following coverage limits:
- Coverage A, Dwelling: $250,000
- Coverage B, Other Structures: $25,000
- Coverage C, Personal Property: $125,000
- Coverage D, Loss of Use: $50,000
- Coverage E, Liability: $300,000
- Coverage F, Medical Payments: $1,000
The homeowners also have a $1,000 deductible and a separate wind and hail deductible (if required).
These are sample rates and should be used for comparative purposes only. Your quotes will differ.
Credit: Rates were calculated based on the following insurance credit tiers assigned to our homeowners: “poor, average, good (base) and excellent.” Insurance credit tiers factor in your official credit scores but are not dependent on that variable alone. The following states do not allow credit to be a factor in determining home insurance rates: California, Maryland, Massachusetts.
Our 2023 Bankrate Score considers variables our insurance editorial team determined impacts policyholders’ experiences with an insurance company. These rating factors include a robust assessment of each company’s product availability, financial strength ratings, online capabilities and customer and claims support accessibility. Each factor was added to a category, and these categories were weighted in a tiered approach to analyze how companies perform in key customer-impacting categories.
Like our previous Bankrate Scores, each category was assigned a metric to determine performance, and the weighted sum adds up to a company’s total Bankrate Score — out of 5 points. This year, our 2023 scoring model provides a more comprehensive view, indicating when companies excel across several key areas and better highlighting where they fall short.
- Tier 1 (Cost & ratings): To determine how well auto and home insurance companies satisfy these priorities, 2023 quoted premiums from Quadrant Information Services (if available), as well as any of the latest third-party agency ratings from J.D. Power, AM Best and the NAIC, were analyzed.
- Tier 2 (Coverage & savings): We assessed companies’ coverage options and availability to help policyholders find a provider that balances cost with coverage. Additionally, we evaluated each company’s discount options listed on its website.
- Tier 3 (Support): To encompass the many ways a home insurance company can support policyholders, we analyzed avenues of customer accessibility along with community support. This analysis incorporated additional financial strength ratings from S&P and Moody’s and factored a company’s corporate sustainability efforts.