In many states, the lower your credit score, the higher your homeowners insurance premium. While the two factors may seem unrelated, home insurance companies use data to justify this rating process. Studies have shown that policyholders with lower credit scores tend to file more claims than those with higher credit scores, making those with poor credit riskier to insure. if you live in any other u.s. state outside of California, Maryland, or Massachusetts, where credit is prohibited as a qualifying factor for home insurance, you’ll want to understand how credit plays a role in your premium and coverage options.
why does having bad credit negatively affect your premiums?
Insurance companies are in the risk business, which means everyone is evaluated on the potential amount they represent to the insurer. Credit histories have long been used as an indicator of the amount of risk a homeowner presents. specifically, your credit score can be used to determine the likelihood that you:
- File Claims: Insurers 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 is riskier to insure.
- Keep your property: Insurance companies often consider that someone with a higher credit score is more likely to maintain their property regularly. therefore, the condition of the home is likely to be better, which may decrease the risk of claims.
- Pay bills on time: Although many home insurance policies are paid from a home equity account, some homeowners pay their premiums themselves. Policyholders with higher credit scores are generally considered more likely to pay on time.
- comparison: Getting quotes from multiple homeowners insurance companies 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 ratings.
- Review Available Discounts: Just like auto insurance, homeowners insurance policies are eligible for premium discounts. ask your provider about lowering your premiums by bundling your policies and installing safety features like security systems, smoke and fire alarms to lower your cost.
- Improve your credit score: As your credit score increases, you may see your home insurance premiums decrease. Just remember that your credit score won’t affect your rates if you live in California, Maryland, or Massachusetts.
- On-time Payments: Your on-time payment history is one of the most important parts of calculating your credit score. late payments can negatively affect your report. Generally, the longer you consistently make on-time payments, the better for your score.
- Keep Credit Utilization Low: Your credit utilization is the amount of credit you use versus the amount you have available. many financial experts recommend using less than 30% of available credit. You can reduce your usage by paying down credit card debt and other balances and keeping a high available credit limit.
- Checking your report for errors: Periodically monitoring your credit report and score can help ensure that the most accurate information is being provided. You’re entitled to three free credit reports each year, and if you find an error, you can take steps to correct the information.
- Reduce Hard Credit Checks: There are two types of credit checks: hard checks and soft checks. Hard checks happen when you apply for a new line of credit, like taking out credit cards or applying for loans. hard checks have the potential to lower your credit rating. however, soft checks occur when your credit is simply being investigated, such as when you get auto insurance quotes. soft checks shouldn’t affect your credit score. reducing hard checks can help you maintain and potentially improve your credit score.
what is the best homeowners insurance company?
how much does homeowners insurance cost?
Is home insurance legally required?
can an insurance company deny me coverage because of my credit?
bankrate uses quadrant information services to analyze 2022 rates for all zip codes and carriers in all 50 states and washington, d.c. Rates quoted are based on male and female homeowners age 40+ with a clean claims history and the following coverage limits:
- coverage a, home: $250,000
- cover b, other structures: $25,000
- coverage c, personal property: $125,000
- coverage d, loss of use: $50,000
- coverage and liability: $300,000
- coverage f, medical payments: $1,000
Homeowners also have a $1,000 deductible and a separate wind and hail deductible (if applicable).
These are sample rates and should be used for comparison purposes only. their quotes will be different.
Credit: Rates were calculated based on the following insurance credit levels assigned to our homeowners: “Poor, Average, Good (Base), and Excellent.” Insurance credit levels take into account your official credit scores, but don’t depend on that variable alone. The following states do not allow credit to be a factor in determining homeowners insurance rates: California, Maryland, and Massachusetts.
Credit histories are not used as a qualifying factor in all states. The following states prohibit the use of credit when rating homeowners insurance policies, which means your level of credit can’t affect how much you pay for homeowners insurance:
how does credit affect your insurance rates?
Generally, the higher your credit score, the lower your insurance premium. Your homeowners insurance premiums are calculated based on many factors, including the age and condition of your home, deductible amount, local crime history, and claims history.
Your credit score, or credit-based insurance score, isn’t the only qualifying factor, although it can be an important one. our research revealed that policyholders with poor credit histories pay an average of 77% 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 homeowners coverage for each of the four credit score levels.
Please note that your credit-based insurance score 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 combination of numbers and letters, for example, to further differentiate your credit-based insurance score from your credit score and to protect your privacy.
However, the impact your credit report has on rates varies among insurance companies. The table below shows the difference in premiums for those with good and bad credit at seven homeowners insurance companies.
The cheapest providers on our list for homeowners with good and bad credit are progressive and usaa. However, please note that USAA only offers coverage to members in the United States. military, veterans and their eligible family members.
can you get cheap home insurance with bad credit?
There are still ways you might be able to find affordable bad credit homeowners insurance. If you have a low credit score and are shopping for home insurance, you may want to:
Speaking with a licensed insurance agent can help you decide which coverage options and discounts are right for your circumstances.
how to improve your credit score to get better rates
While fixing bad credit may seem daunting, there are several tactics you can use to potentially improve your credit score. you may be able to improve your credit score by: