Does credit score affect homeowners insurance?

Does my credit score affect my home insurance?

Although home insurance companies in most states can consider your credit history to determine rates, they don’t use your credit score. Instead, they use your credit history to generate a credit-based insurance score.

Policyholders with higher credit-based insurance scores might be more likely to pay on time and avoid lapses in coverage. They might also have the resources available to maintain their homes, which could lessen the likelihood of needing to file a claim. To compensate for the higher risk of claims and lapses, insurance companies tend to charge higher premiums for policyholders with lower credit-based insurance scores.

As of 2023, only a few states have banned the use of credit as a rating factor for home insurance. If you live in California, Maryland or Massachusetts, your insurance company is restricted from using your credit history to rate your policy.

FICO credit scores vs. credit-based insurance scores

Credit-based insurance scores differ from the everyday FICO score used for loans and credit card approvals. Essentially, credit scores are used to determine how much money you make and how able you would be to pay back a loan amount. Credit-based insurance scores are used to determine how well you handle your money. This may help insurers know how likely you are to pay your bills on time or file a claim. Your income level does not factor into a credit-based insurance score.

Additionally, home insurance companies don’t have access to your actual credit score or any of the related information. The data that is used to compile a credit-based insurance score is translated into each company’s unique scoring system. Credit-based insurance scores were developed over 20 years ago. Originally, direct credit scores were used in insurance rating, but the system was prone to needing an underwriter’s personal judgment, which led to inconsistencies in rating. Insurance scores are a more streamlined and standardized metric. These scores have been refined over time and now take specific components of a person’s regular credit score and use the information to predict how likely an applicant is to file an insurance claim.

Some companies use numbers to represent insurance scores, some use letters and some use a combination. Because of this, your credit-based insurance score will be different with each carrier. However, you might be able to make a pretty good guess on the level of your credit-based insurance score by understanding your regular credit score. FICO credit scores range between 300 to 850.

Although credit scores and credit-based insurance scores aren’t the same things, you probably have a higher credit-based insurance score if you have a high credit score.

How does credit impact home insurance premiums?

Typically, the higher your credit rating, the less you will pay for home insurance in the states where credit is considered a rating factor. Although it is only one factor in setting rates for home insurance, data shows that the credit-based insurance score is an important one. The chart below highlights the national average annual home insurance rates based on four credit tiers.

While these credit tiers don’t translate directly to credit-based insurance scores, they’re a good metric for analyzing how credit affects home insurance premiums. Because every company uses its own scoring metric to determine credit-based insurance scores, there is no standardized data available.

Note that the rates don’t vary dramatically between average, good and excellent scores. However, a poor score, falling below 580 or so, does have a very significant impact on rates. As the table shows, someone with a poor credit score pays over 170 percent more for home insurance, on average, than someone with an excellent score.

Credit tier rates by insurance company

Bankrate also reviewed these statistics for some of the leading home insurance companies. Most home insurance companies’ rates follow a similar pattern to the overall averages above. Average, good and excellent credit scores don’t generate significantly different rates. Poor credit scores, however, may increase rates significantly by property insurers.

Can I get homeowners insurance with bad credit?

Yes, homeowners with bad credit can likely still find home insurance coverage, even if they live in a state where credit is used as a home insurance rating factor. As poor credit may lead to higher premiums, shopping around and comparing quotes may help you find affordable rates. Some companies may not weigh credit history as heavily as others when determining premiums.

If your credit is so poor that you have been denied coverage by standard insurers, you may need to seek insurance through your state’s Fair Access to Insurance Requirements (FAIR) plan. These plans are designed to insure high-risk individuals who can’t find coverage within the standard insurance market. While FAIR plans may be great to have as a last resort, coverage is often limited and relatively expensive.

Can you boost your credit to lower your home insurance rates?

In states where credit is allowed as a rating factor, a consistent effort to improve your credit over time may positively impact your homeowners insurance rates. Some strategies to potentially improve your credit-based insurance score include:

• Understand your credit history: Identifying factors that are negatively impacting your credit is likely the first step to improving your credit rating. If you’re unsure of why your score is low, you may need to request a full credit report. This can be done for free through the main credit reporting bureaus.
• Pay bills on time: Avoiding late payments will likely improve your credit score over time.
• Use credit responsibly: Keeping your credit utilization ratio low may help improve your score.
• Limit hard credit checks: Hard credit checks are performed when you apply for a credit card or loan. Having frequent hard credit checks may negatively impact your credit score.

Your premiums likely won’t drop overnight, but if you are able to improve and maintain a higher credit rating, your credit-based insurance score might also improve, which might lower your rates. If you have recently improved your credit, it may benefit you to get a few insurance quotes to see if you can find a lower rate.

Frequently asked questions

Methodology

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.