Homeowners insurance for people with bad credit

1
urbazon/Getty Images
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

Insurance companies use your credit-based insurance score to determine the amount of risk you potentially pose to the carrier. Purchasing home insurance with bad credit or poor credit is likely to mean higher premiums for your insurance policy. Before you begin applying for home insurance, you should understand the impact of bad credit on your premiums and what you can do to obtain the best coverage for your financial situation.

Why does having bad credit negatively affect your premiums?

Insurance companies are in the business of risk, which means everyone is evaluated on the potential amount they pose to the carrier. Credit scores have long been used as one indicator of the amount of risk a homeowner could pose to a carrier.

  • Correlation between score and claims: Carriers have found a connection between lower credit scores and a higher chance of filing a homeowners insurance claim, which makes someone with a lower credit score considered riskier.
  • More likely to maintain your property: Someone with a higher credit score is considered more likely by the carrier to regularly maintain their property. Therefore, the condition of the home is likely to be better.

How does credit affect your insurance rates?

Your homeowners insurance premiums are calculated based on numerous factors. Factors such as your age, zip code, age of the home, amount of deductible, local crime history and your previous claims history are all part of the determination for your rates.

Your credit score is also a part of this, and while not the only factor, it is an important one. Having poor credit means you could pay more than double for insurance premiums.

Poor Credit Excellent Credit
Sample Rate $2,870 $1,125

However, if you have bad or poor credit, it’s important to note that the impact on rates varies among insurance carriers. This chart shows the difference in premiums from eight different companies, all based on homeowners with poor credit scores.

Progressive $1,579
Nationwide $1,626
USAA $1,897
AmTrust Financial $1,909
American Family $2,201
Travelers $2,420
Allstate $2,551
State Farm $3,263

Keep in mind smaller insurance companies or regional providers may be able to provide homeowners coverage for the same amount, if not less, than the big national carriers. For instance, using the same criteria as above, premiums cost $508 annually for New Jersey Manufacturers Insurance (NJM) customers.

PEMCO and Farm Bureau also offer competitive rates for home insurance with poor credit. The rates quoted were $701 and $916 per year, respectively.

Can you get cheap homeowners insurance with bad credit?

Bad credit does not make it impossible to get cheap homeowners insurance. However, it does mean you may have to do a little more homework.

  • Comparison shop: By far, comparison shopping is the most effective way to obtain the cheapest homeowners insurance rates with bad credit. You can compare carriers and the quotes side by side and confirm the coverage is exactly what you need.
  • Review available discounts: Like auto insurance, homeowners insurance policies are eligible for discounts on premiums. Ask your carrier about reducing your premiums by bundling your policies, paying in one lump sum versus installments and safety discounts (security systems, smoke and fire alarms) to reduce your cost.
  • Improve your credit score: As your credit score increases, you have a stronger chance of obtaining more competitive and less expensive premiums.

It’s usually a good idea to speak with a licensed insurance agent to determine which companies may offer the best policies for your unique situation, too.

How to improve your credit score for better rates

While repairing bad credit may seem daunting, there are several tactics you can use to improve your credit score. Once your score is improved and it is time for your policy renewal, talk to your licensed insurance agent about your improved rate to receive guidance on your premiums. You can improve your credit score with the following:

  • Making on-time payments: Your history of making payments on time is the most significant portion of your credit score calculation in most cases. Late payments, which is anything paid over 30 days late, negatively impact your report. The longer you make on-time payments consistently, the better it is for your score.
  • Keep credit utilization low: Your credit utilization is the amount of credit you use versus the amount you have available to you. Most financial experts recommend using less than 30% of available credit to you, which also improves your score. You can lower your utilization by paying down balances and increasing your credit limits.
  • Check your report for errors: Regularly monitoring your credit report and score ensures the most accurate information is reported. You are entitled to three free credit reports each year, and if you find a mistake, you can take steps to get the information corrected.

FAQ

What is the best homeowners insurance company?

There are many factors used to determine the best homeowners insurance company for your home and financial situation. Review the customer service ratings, financial strength, coverage options and rates among many carriers to choose the best for you. Bankrate has also gone through the same steps and found Allstate, Amica, Chubb and MetLife are all strong contenders for best homeowners insurance company. It’s always a good idea to speak with a licensed insurance agent before purchasing any insurance to ensure that you are getting the most for your money.

How much do homeowners insurance premiums cost?

The cost of your premiums is based on a wide variety of personal factors — in addition to credit score. Your age, home location, selected coverages and applied discounts all influence how much you pay and make your rate different from your neighbors. The average cost of homeowners premiums on average for $250,000 in dwelling coverage is currently $1,312 annually.

Is home insurance legally required?

Unlike auto insurance, homeowners insurance is not legally required by your state. However, most lenders require you to purchase a policy if you are financing your home. Depending on where you live, you could also be required to purchase a separate flood insurance policy by your mortgage as well.

Methodology

Bankrate utilizes Quadrant Information Services to analyze 2021 rates for all 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 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).

Rates were calculated based on the following insurance credit tiers assigned to our drivers: “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 auto insurance rates: CA, HI, MA. Maryland factors a few credit-related variables in determining rates but does not weigh those factors the same as other states.

These are sample rates and should be used for comparative purposes only. Your quotes will differ.

Written by
Sara Coleman
Insurance Contributor
Sara Coleman has three years of experience in writing for insurance domains such as Bankrate, The Simple Dollar, Reviews.com, Coverage.com and numerous other personal finance sites. She writes about insurance products such as auto, homeowners, renters and disability.