Homeowners insurance for people with bad credit

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, your premium will be higher to account for the added risk.

Lenders commonly use credit histories 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-based insurance 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-based insurance 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-based insurance 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:

• California
• Maryland
• Massachusetts

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-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 $300,000 in dwelling coverage for each of the four credit rating tiers.

In most states, insurers will use your credit-based insurance score when determining your insurance premiums. However, the role your credit plays in your eventual insurance costs varies from company to company. Because each insurer has its own algorithm for pricing, some assign a high weight to your credit history while others prioritize other rating factors more.

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 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. Bankrate Scores are designed to help you quickly evaluate which companies may be worth looking at before you begin to compare home insurance quotes.

Even if you have bad credit, you may still be able to find cheap homeowners insurance. The following shopping strategies may help to offset your credit history’s negative impact on your home insurance rates:

• Shop around and compare quotes: Not all home insurance companies attach the same weight to your credit history. Make sure that you request quotes from several home insurance carriers for the same coverage types and levels and consider other factors such as customer service and coverage options that are important to you before settling on a single insurer.
• 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 record: Because your credit history 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 if your insurer factors credit.

Speaking with a licensed insurance agent can help you decide on the best overall strategy to save on your home insurance if you aren’t sure where to start.

If you’re in a poor credit bracket, you may find it worthwhile to improve your credit before applying for home insurance. While the process may seem daunting, you may be able to improve your credit record over time 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 April 2024 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on married male and female homeowners with a clean claim history, good credit and the following coverage limits:

• Coverage A, Dwelling: $300,000
• Coverage B, Other Structures: $30,000
• Coverage C, Personal Property: $150,000
• Coverage D, Loss of Use: $60,000
• Coverage E, Liability: $500,000
• Coverage F, Medical Payments: $1,000

The homeowners also have a $1,000 deductible, a $500 hail deductible and a 2 percent hurricane deductible (or the next closest deductible amounts that are available) where separate deductibles apply.

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.

Bankrate Score

Our 2024 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.

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. Our scoring model provides a comprehensive view, indicating when companies excel across several key areas and highlighting where they fall short.

• Tier 1 (Cost & ratings): To determine how well auto and home insurance companies satisfy these priorities, average 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, Demotech 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.