Depending on where you live, your credit rating could affect your eligibility and your home insurance premium. In the majority of states, credit is used as a home insurance valuation factor. It might sound strange, but there is a statistical connection between an insurance score based on an insured’s credit – which is partly calculated using the credit score – and the likelihood of filing a claim.
Understanding where, how and why your credit rating could affect your home insurance premium could help you take more control over your financial health. Bankrate’s insurance editorial team has researched how credit affects home insurance to help you gain the knowledge you need to make informed insurance decisions.
Key points to remember
- Credit score affects home insurance rates in most states.
- Credit scores are not the same as credit-based insurance scores.
- Homeowners with poor credit pay on average 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 assess your policy. Credit-based insurance ratings were developed over twenty years ago. Originally, direct credit scores were used for rating insurance, but the system was likely to require the personal judgment of an insurer, leading to inconsistencies in the rating. Insurance scores are a more streamlined and standardized measure. These ratings have been refined over time and now take specific elements of a person’s regular credit score and use the information to predict the likelihood of a claimant having an insurance claim.
Policyholders with higher insurance scores may be more likely to pay on time and avoid lapses. They might also have the resources to maintain their home, which could reduce the likelihood of having to file a claim. The reverse is also true. To offset the higher risk of claims and lapses, insurance companies tend to charge higher premiums for lower credit-based insurance scores.
Four states currently prohibit the use of credit as a rating factor for home insurance. If you live in California, Maryland, Massachusetts, or Washington, your insurance company cannot use your credit to assess 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 credit card loans and approvals. Essentially, credit scores are used to determine how much money you earn and how well you would be able to repay the loan amount. Credit-based insurance scores are used to determine how well you are managing your money. This can help insurers know how likely you are to pay your bills on time or file a claim. Your income level is not factored into a credit-based insurance score.
Additionally, home insurance companies do not have access to your actual credit score or any related information. The data 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. For this reason, your credit-based insurance score will be different with each insurer. However, you might be able to make a fairly good estimate by understanding your regular credit score. FICO credit scores range from 300 to 850. Although credit scores and credit-based insurance scores are not the same things, you likely have a higher credit-based insurance score if you have a high credit rating.
How does credit affect your insurance rates?
Generally, the higher your credit rating, the less you will pay for home insurance in states where credit is considered a rating factor. Although this is only one factor in setting home insurance rates, data shows that credit-based insurance score is an important factor. The table below highlights the national average annual home insurance rates according to four credit levels. While these credit levels do not translate directly into credit-based insurance scores, they are a good metric for analyzing the impact of credit on home insurance premiums. Because each company uses its own rating metric to determine credit-based insurance scores, there is no standardized data available.
Note that the rates do not vary significantly between average, good, and excellent. However, a bad score, below around 580, has a very big impact on the rates. As the table shows, a person with a bad credit score on average pays more than 150% more for home insurance than a person with a great credit rating.
| Credit level | Poor | Medium | Good | Excellent |
|---|---|---|---|---|
| Average annual premium for residential coverage of $ 250,000 | $ 2,870 | $ 1,433 | $ 1,312 | $ 1,125 |
Credit score by insurance company
Bankrate has also reviewed these statistics for some of the major home insurance companies. The rates for most home insurance companies follow a similar trend to the overall averages above. Average, Good, and Excellent credit scores do not result in significantly different rates. However, bad credit scores can dramatically increase the rates of real estate insurers.
| Bad credit | Average credit | Good credit | Excellent credit | |
|---|---|---|---|---|
| AAA | $ 3,074 | $ 1,382 | $ 1,263 | $ 1,078 |
| Allstate | $ 2,551 | $ 1,560 | $ 1,458 | $ 1,283 |
| american family | $ 2,200 | $ 1,385 | $ 1,295 | $ 1,138 |
| Amica | $ 3,764 | $ 2,805 | $ 2,644 | $ 2,321 |
| Chubb | $ 3,077 | $ 1,751 | $ 1,630 | $ 1,433 |
| Erie | $ 3,521 | $ 1,062 | $ 897 | $ 725 |
| Farm office | $ 916 | $ 669 | $ 619 | $ 520 |
| Farmers | $ 4,812 | $ 2,222 | $ 1,980 | $ 1,559 |
| Mercury | $ 881 | $ 634 | $ 614 | $ 568 |
| At national scale | $ 1,626 | $ 1,095 | $ 1,042 | $ 939 |
| State farm | $ 3,263 | $ 1,708 | $ 1,503 | $ 1,165 |
| Hanover | $ 5,606 | $ 2,725 | $ 2,299 | $ 1,441 |
| The Hartford | $ 2,745 | $ 1,689 | $ 1,609 | $ 1,528 |
| Travelers | $ 2,420 | $ 1,422 | $ 1,269 | $ 1,094 |
| United States | $ 1,897 | $ 1,061 | $ 992 | $ 859 |
Can I buy home insurance for bad credit?
Yes, homeowners with bad credit can still find home insurance coverage. Because bad credit can lead to higher premiums, shopping around will be essential. Getting quotes from multiple vendors will help you compare premiums to find the best option for you.
If your credit is so poor that standard insurers have denied you coverage, you may need to apply for insurance through your state’s FAIR plan. Short for Fair Access to Insurance Requirements, these plans are designed to insure high risk individuals who cannot find coverage in the standard insurance market. While FAIR plans are great as a last resort, coverage is often limited and relatively expensive.
How Can You Increase Your Credit Score To Lower Your Home Insurance Rates?
Your credit score can be a big factor when looking for affordable home insurance. Sustained but constant effort can improve your credit over time and have a positive impact on your home insurance rates. Here are some ways to improve your credit insurance score:
Your premiums probably won’t go down overnight, but if you’re able to improve and maintain a higher credit score, your credit insurance score might improve as well, potentially lowering your rates. .
Frequently Asked Questions
Are there any insurance companies that do not check credit scores?
Yes, there are home insurance companies that do not use credit scores. Universal Property & Casualty is one example. You may need to do some research in your specific state, if your state allows the use of credit in home insurance scoring, to find an insurer without a credit check. If you can’t find one, you might still want to get quotes from multiple companies, even if your credit is impacting your premium. These companies may still have ways to lower your premium, such as discounts.
Do some states prohibit the use of credit scores in home insurance rates?
Yes, there are four states that don’t allow insurance companies to use credit to rate home insurance policies: California, Maryland, Massachusetts, and Washington. Washington’s ban is recent and temporary; it was put in place at the start of 2021 for a period of three years. Other states, like Michigan, don’t allow insurers to cancel or deny coverage based on your credit, but it can be used to assess your home insurance policy.
Do home insurance quotes have an impact on my credit score?
No, getting insurance quotes and applying for policies shouldn’t affect your credit score. Insurance companies use soft jumpers when they use your credit to calculate your credit-based insurance score. Soft prints examine your information but shouldn’t affect your credit report. Difficult drawings impact your credit score.
Methodology
Bankrate uses Quadrant Information Services to analyze 2021 rates for all zip codes and carriers in all 50 states and Washington, DC Rates shown are based on 40 year old male and female owners with a clean claim history and the following coverage limits:
- Coverage A, Housing: $ 250,000
- Cover B, Other structures: $ 25,000
- Coverage C, Personal Property: $ 125,000
- Cover D, Loss of use: $ 50,000
- Cover E, liability: $ 300,000
- Coverage F, Medical payments: $ 1,000
Homeowners also have a $ 1,000 deductible and a separate wind and hail deductible (if required).
These are sample rates and should only be used for comparison purposes. Your quotes will be different.
Credit: Rates have been calculated based on the following insurance credit levels assigned to our owners: “poor, average, good (basic) and excellent.” Insurance credit levels reflect your official credit scores , but do not depend solely on this variable The following states do not allow credit to be a factor in determining home insurance rates: California, Maryland, Massachusetts, Washington.
