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When shopping for homeowners insurance, you may be aware that the location, size, and condition of your home can impact your insurance premium. What you may not be aware of, though, is that in most states, your credit score can also be used as a factor to determine your homeowners insurance cost. That’s because there is a statistical link that shows policyholders with better credit-based insurance scores are at lower risk of filing insurance claims. In turn, a good credit score could lead to a lower homeowners insurance premium in certain states.
And while credit score as an insurance rating factor is dependent on where you live, it may still benefit you to understand the potential impact your credit score can have on your homeowners insurance costs. By understanding where, how and why your credit score could impact your home insurance premium, you may be better prepared to take control of your financial health. To get you started, Bankrate’s insurance editorial team researched how credit affects home insurance.
- Credit rating affects home insurance rates in most states.
- Credit scores are not the same thing as credit-based insurance scores.
- Homeowners with poor credit pay an average of 155% more for home insurance than homeowners with excellent credit.
How does credit score affect your home insurance?
Your credit score is used to generate a credit-based insurance score, which is then used to help rate your policy. Credit-based insurance scores were developed over twenty 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 have an insurance claim.
Policyholders with higher 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. The reverse is also true. To compensate for the higher risk of claims and lapses, insurance companies tend to charge higher premiums for lower credit-based insurance scores.
In some states, although your credit can be a rating factor, it cannot be the only factor, nor can it impact the decision to cancel or non-renew your policy. As of 2022, several states have banned or restricted the use of credit as a rating factor for home insurance. If you live in California, Hawaii, Maryland, Michigan or Massachusetts, your insurance company is restricted from using your credit to rate your policy.
What is the difference between a FICO credit score and a credit-based insurance score?
Credit-based insurance scores differ from the everyday FICO score (named after its creator, the Fair Isaac Corporation) 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 can 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. 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 from 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 affect your insurance rates?
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 150% more for home insurance, on average, than someone with an excellent score.
|Average annual premium for $250K dwelling coverage||$2,870||$1,433||$1,312||$1,125|
Credit score 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, can increase rates significantly by property insurers.
|Poor credit||Average credit||Excellent credit|
Can I get homeowners insurance with bad credit?
Yes, homeowners with bad credit can still find home insurance coverage, even if you live in a state where your credit can be used as an insurance rating. Because poor credit can lead to higher premiums, shopping around is going to be essential. Getting quotes from several providers will help you compare premiums to find the best option for you.
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 plan. Short for Fair Access to Insurance Requirements, these plans are designed to insure high-risk individuals who can’t find coverage within the standard insurance market. While FAIR plans are great to have as a last resort, coverage is often limited and relatively expensive.
How can you boost your credit score to lower your home insurance rates?
Your credit score can be an important factor when searching for affordable home insurance. A sustained but consistent effort can improve your credit over time and positively impact your homeowners insurance rates. Some ways that should improve your credit-based insurance score include:
- Order your full credit report.
- Check your report for mistakes and dispute them.
- Pay bills on time.
- Use credit responsibly.
Your premiums likely won’t reduce themselves overnight, but if you are able to improve and maintain a higher credit rating, your credit-based insurance score might also improve, which could 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
Yes, there are home insurance companies that do not use credit scores as a rating factor. Universal Property & Casualty is one example. You may need to do a bit of research in your specific state, if your state allows the use of credit in home insurance rating, to find a no-credit-check insurer. If you can’t find one, you might still want to get quotes from several companies, even if your credit impacts your premium. Those companies might still offer ways to lower your premium, like discounts.
Yes, there are several states that either ban or restrict insurance companies from using your credit as a factor when determining your home insurance rating. As of 2022, California, Hawaii, Maryland, Michigan and Massachusetts either ban or limit insurance companies from considering your credit score when calculating insurance rates or determining whether to cancel or deny coverage.
No, getting insurance quotes and applying for coverage does not typically affect your credit score. Most insurance companies use soft pulls when using your credit to calculate your credit-based insurance score. Soft pulls allow these companies to review your information but do not affect your credit report. Hard pulls do have an impact on your credit score.
Bankrate utilizes Quadrant Information Services to analyze 2022 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.