In most states, home insurance companies use your credit rating to help determine how much of a risk you pose. Your credit score may be used to determine the probability that you will file claims or how likely it is that you’ll pay your bills on time. In general, the lower your credit score, the higher your premium will be. But don’t worry. Carriers can’t actually see your credit score. That number is translated into a credit-based insurance score to protect your privacy.
If you have poor credit, there are still home insurance options available to you. Understanding how and why your credit can affect your home insurance may help you make more educated choices about your coverage. Bankrate has researched the best home insurance companies for people with bad credit. Our investigation could help you find a carrier that fits your 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 presents. Specifically, your credit score may be used to determine how likely you are 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 can 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 is 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
- Washington
How does credit affect your insurance rates?
Generally, the higher your credit rating, the lower your insurance premium will be. Your homeowners insurance premiums are calculated based on numerous factors such as your age, ZIP code, age of the home, deductible amount, local crime history and claims history.
Your credit score — or credit-based insurance score — may also be considered, and while not the only factor, it can be an important one. Our research revealed that policyholders with poor credit pay over 150% more for home insurance than policyholders with excellent credit. The premiums in the table below illustrate 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 | $2,870 | $1,433 | $1,312 | $1,125 |
However, the impact that your credit has on rates varies among insurance carriers. The table below shows the difference in premiums from eight companies, all based on homeowners with poor credit scores. The final column shows how much higher each premium is above the national average cost of home insurance.
| Insurance company | Average annual premium with poor credit for $250K dwelling coverage | Average annual premium with good credit for $250K dwelling coverage |
|---|---|---|
| Progressive | $1,579 | $1,026 |
| Nationwide | $1,626 | $1,042 |
| USAA | $1,897 | $992 |
| AmTrust Financial | $1,909 | $1,016 |
| American Family | $2,200 | $1,295 |
| Travelers | $2,420 | $1,269 |
| Allstate | $2,551 | $1,458 |
| State Farm | $3,263 | $1,503 |
Keep in mind that 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, New Jersey Manufacturers Insurance (NJM) customers with poor credit pay an average annual premium of just $508 for home insurance.
PEMCO and Farm Bureau also offer competitive rates for home insurance with poor credit. The rates quoted were $701 and $916 per year for $250K in dwelling coverage, respectively.
Can you get cheap homeowners insurance with bad credit?
There are still ways that you might be able to find cheap homeowners insurance with poor credit. If you have a low credit score and are shopping for home insurance, you might want to:
- Comparison shop: Getting quotes from several carriers is one of the most effective ways to find the cheapest homeowners insurance rates for your situation. Comparison shopping allows you to compare each company’s premium, coverage options, discounts, policy features and third-party scores.
- 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 and installing safety features like security systems, smoke and fire alarms to reduce your cost.
- Improve your credit score: As your credit score increases, you might see your home insurance premiums decrease. Just remember that your credit score won’t impact your rates if you live in California, Maryland, Massachusetts or Washington.
Speaking with a licensed insurance agent might help you decide what coverage options and discounts are right for your circumstances.
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. You might be able to improve your credit score by:
- Making on-time payments: Your history of making payments on time is one of the most significant portions of your credit score calculation. Late payments can negatively impact your report. Usually, the longer you make on-time payments consistently, the better it is for your score.
- Keeping credit utilization low: Your credit utilization is the amount of credit you use versus the amount you have available to you. Many financial experts recommend using less than 30% of available credit to you. You can lower your utilization by paying down balances and maintaining a high available credit limit.
- Checking your report for errors: Regularly monitoring your credit report and score can help make sure 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.
Frequently asked questions
What is the best homeowners insurance company?
There is no single home insurance provider that is the best for everyone. Each homeowner has different needs, wants and circumstances that will affect their choice in insurance companies. Still, some carriers do stand out as being particularly appealing. Bankrate’s research found that USAA, Lemonade, Travelers, AAA, Amica and Allstate are among the best home insurance companies in the country.
How much does homeowners insurance cost?
Your premium is based on a wide variety of personal factors in addition to credit score. Your age, home location, selected coverage options and applied discounts all influence how much you pay. The average cost of homeowner insurance for $250,000 in dwelling coverage is $1,312 annually.
Is home insurance legally required?
Unlike auto insurance, homeowners insurance is not legally required in any state. However, most lenders require you to purchase a policy if you are financing your home. Depending on where you live, your mortgage lender could also require you to purchase a separate flood insurance policy.
If you own your home outright, you might still want to buy home insurance. A policy can help protect your financial health if your home is damaged or destroyed.
Can an insurance company deny coverage because of my credit?
In some states, yes, you could be denied coverage due to your credit. A low credit score might mean that a company considers you too great of a risk to insure, which could lead to the carrier denying coverage. However, some states do not allow this practice. If your coverage has been denied due to your credit rating, you may need to get quotes from other insurance providers to find the right company for you.
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).
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, Washington.
Share