UPDATED: AUGUST 10, 2023 | 2 MIN READ
Unless you live in a specific state which prohibits using credit scores or doing credit checks, such as California, Massachusetts, and Maryland, determining home insurance rates, your money management history, and spending behaviors can dramatically impact how much you pay for home insurance.
Home insurance companies can use your credit information when initially underwriting a home insurance policy, but it can’t be the only factor used to make the decision.
While insurance companies initially use your credit scores as a guideline to write a policy, the company will not use your credit rating to cancel or refuse to renew your policy.
Home insurance without a credit check
Homeowners insurance companies use credit history to assess risk. Credit-based insurance scores measure how well individuals manage their money—not how much they make.
Actuarial studies show that how a person manages financial affairs is a good predictor of insurance claims.
Statistically, insurance providers have found that people with a low insurance score are more likely to file a claim and therefore tend to have to pay a higher rate.
A credit check is just one factor used to determine your premium. Insurance companies also consider payment history, claims history, home location, and upgrades.
What can I do if I have poor credit?
You should take steps to improve your credit and financial standing, but if you need home insurance coverage immediately, try these short-term tips to get an affordable homeowners insurance policy with a low credit score:
Shop around
Get as many quotes as possible to make an informed decision. When insurance companies check your credit score, it’s not a hard inquiry; get as many as you need. Doing so will not result in a lower credit score.
Pay upfront
There are discounts to paying the annual premium in full rather than monthly or quarterly. Have multiple policies with the same company for deals such as auto insurance.
Request a reevaluation
After six months of working on improving your Fico credit score, ask your homeowners’ insurance company to reassess your policy based on the updated score to see if you can receive lower rates.
Be aware of your credit score by checking with credit bureaus such as Experian, Transunion, or Equifax to get the best homeowners insurance rates.
How can I get around a credit check altogether?
Live in the right state – Currently, unless you live in California, Maryland, or Massachusetts, which prohibits using credit scores to determine home insurance rates, the insurance company will use your credit scoring to assess your home insurance premiums.
Impact of credit scores on home insurance premiums
It’s essential to note that multiple factors influence insurance premiums, and credit scores are just one piece of the puzzle. Insurance companies also consider other factors like location, claims history, property characteristics, and coverage limits when determining premiums.
Improving credit scores can help homeowners secure lower insurance premiums. By implementing good financial habits, paying bills on time, and reducing debt, homeowners can gradually improve their creditworthiness, potentially leading to more affordable home insurance rates.
Comparison of premiums for homeowners with good credit vs. bad credit
When it comes to home insurance premiums, credit scores play a significant role. Homeowners with bad credit scores generally experience higher insurance rates than those with good credit. Consider the following statistics:
- Average percentage increase in premiums:
- Homeowners with bad credit: On average, homeowners with bad credit can expect to pay almost twice as much for home insurance premiums as those with good credit.
- The exact increase in premiums may vary based on individual circumstances. Still, a study by InsuranceQuotes found that homeowners with poor credit scores paid an average of 91% more for home insurance than those with excellent credit.
- Impact on premiums:
- Good Credit: Homeowners with good credit scores typically enjoy lower insurance premiums as insurers view them less risky. They may receive discounts and more favorable rates due to their responsible financial management.
- Bad Credit: Homeowners with bad credit scores face higher premiums due to the perceived higher risk of filing claims. Insurance companies associate lower credit scores with a higher probability of making claims, leading to increased rates.
Understanding the relationship between credit-based insurance scores and insurance claims
Understanding the specific factors contributing to the relationship between credit-based insurance scores and claim rates provides valuable insight into the importance of maintaining a healthy credit profile. By proactively managing their finances and improving their credit scores, homeowners can reduce their risk exposure, potentially leading to lower insurance premiums and a decreased likelihood of filing claims.
How credit-based insurance scores reflect risk management behavior
Credit-based insurance scores provide insights into an individual’s risk management behavior, helping insurance companies assess the likelihood of future insurance claims. These scores are derived from a combination of credit history, payment patterns, and financial management practices. By examining these factors, insurers understand an individual’s financial responsibility and potential risk exposure.
Factors contributing to higher claim rates for individuals with lower scores
Actuarial studies consistently reveal a correlation between lower credit-based insurance scores and increased insurance claims. Several factors contribute to this relationship:
- Financial stress and instability: Individuals with lower credit scores often face financial difficulties, such as high debt burdens, missed payments, or bankruptcy. Financial stress can lead to a higher probability of filing insurance claims due to insufficient funds to cover unexpected expenses.
- Neglect of property maintenance: Poor credit scores may indicate a lack of financial resources or motivation to invest in property maintenance. Neglected maintenance can result in leaky roofs, faulty electrical systems, or deteriorating structures, increasing the likelihood of property-related claims.
- Adverse lifestyle factors: Individuals with lower credit scores may be more prone to risky behaviors or circumstances that lead to insurance claims. For example, a history of late payments or financial instability might correlate with higher probabilities of accidents, property damage, or theft.
- Limited access to insurance alternatives: Homeowners with lower credit scores may struggle to find coverage through traditional insurance companies. As a result, they may resort to non-standard insurers or government-backed programs, which often cater to high-risk individuals. These alternative options may have higher premiums or limited coverage, further impacting claim rates.
Tips for improving your credit
- Most states have a government-backed insurance company for homeowners with difficulty acquiring insurance.
- Check your credit report regularly, and always pay your credit card bill and lenders on time. Do not make late payments or open credit accounts that aren’t necessary. Whether you have new or poor credit, this will help you increase your credit score and earn the best rates.
- How much debt appears on your credit reports? Do you have several accounts that have balances? What about your credit utilization, which measures your balances versus the credit card credit limits and loan amounts? The less debt appears on your credit reports, the better your credit scores will become.
- Every home insurance company calculates its premiums differently. Compare quotes from several companies to find the best deal. Most agents have different insurance companies that they can choose from with various requirements.
- Compare deductible amounts; a higher deductible means lower premiums. However, you will have to meet that deductible if you have a claim in the future. Bundling your home and auto policies can gain discounts for multiple policies.
Factors affecting home insurance rates beyond credit checks
Understanding these additional factors beyond credit checks influencing home insurance rates enables homeowners to be better prepared when seeking coverage. By being aware of these elements, individuals can make informed decisions regarding their insurance needs and take appropriate measures to mitigate risk, potentially resulting in more favorable insurance premiums.
Location of the home
The location of your home plays a crucial role in determining your insurance rates. Insurance providers assess the risk associated with the area where your home is situated. Factors that can influence rates based on location include:
- Proximity to natural disasters: Homes located in regions prone to natural disasters, such as hurricanes, earthquakes, floods, or wildfires, often have higher insurance premiums due to the increased risk of property damage or loss.
- Crime rates: Areas with higher crime rates may have higher insurance premiums as they are more likely to experience theft, vandalism, or property damage. The insurance company considers the risk of potential claims associated with criminal activities.
Condition and age of the home
The condition and age of your home are significant factors insurance companies consider when determining premiums. Some aspects to consider include:
- Building materials and structural features: Homes constructed with fire-resistant materials, sturdy roofs, and updated electrical and plumbing systems generally have lower insurance rates. These features reduce the risk of damage or loss and make the home more resilient to potential hazards.
- Age of the home: Older homes might have outdated systems, such as plumbing or electrical, which can increase the risk of damage or accidents. Consequently, older homes may have higher insurance rates than newer, more modern constructions.
Home size and value
The size and value of your home also impact insurance rates. Consider the following factors:
- Replacement cost: Insurance companies consider the estimated cost to rebuild or repair your home in case of a covered loss. Larger homes or those with higher market values typically require more coverage, resulting in higher premiums.
- Additional structures: If your property includes additional structures like detached garages, sheds, or swimming pools, these features can increase your insurance rates. These structures add to the overall replacement value and potential liability exposure.
Geographical characteristics
Specific geographical characteristics can influence home insurance rates in certain areas. Examples include:
- Proximity to water: Homes located near coastlines, lakes, or rivers may face higher insurance rates due to increased risks from flooding, storm surge, or water-related damage.
- Terrain and slope: Properties on steep slopes or areas prone to landslides might have higher insurance premiums. The risk of potential structural damage or property loss due to natural events like erosion or landslides contributes to these increased rates.
FAQs
Do they run your credit for homeowners insurance?
When applying for homeowners insurance, insurers typically conduct their own credit checks to assess your risk level. A good credit score positions you as a “low-risk insured,” making you eligible for more affordable insurance rates due to the insurer’s perception of responsible financial behavior.
Can you be turned down for insurance because of your credit score?
The impact of credit scores on insurance varies across states. In some states like California, Hawaii, Massachusetts, and Michigan, insurers are prohibited from considering credit scores when determining insurance rates. However, in other states, a poor credit score can have different implications when shopping for auto insurance, potentially leading to higher premiums.
Does getting a home insurance quote hurt your credit?
Obtaining insurance quotes and applying for coverage generally don’t impact your credit score. Insurance companies often utilize soft pulls, which allow them to assess your credit-based insurance score without affecting your credit report. These soft pulls enable companies to review your information for underwriting purposes while keeping your credit score unaffected.
What is a good credit score for insurance?
When seeking a car insurance policy with competitive prices, a credit score in the “good” range, typically between 670 and 739 according to the FICO scoring model, is generally considered the minimum threshold. Maintaining a credit score within this range increases the likelihood of securing more favorable pricing for your car insurance.
Does home insurance go by your credit score?
Yes, your credit score is one of the factors, but it’s not the only deciding factor in your premium. Items such as the location and condition of the home, marital status, and employment also play a part in determining your home insurance premiums.
Is a credit check required for insurance?
Yes, but it is prohibited to use your score if you live in California, Maryland, and Massachusetts.
Do all insurance companies run credit checks?
No, but this depends on which state you apply for home insurance.
How do I get home insurance after being denied?
Most states have government-backed insurance companies to insure homeowners, which standard insurance companies have denied.
How much does home insurance cost?
A home insurance policy with $250,000 in dwelling coverage costs an average of $1,383 annually in the United States.
What can I do if denied home insurance?
Contact the state insurance office for recommendations. There are many reasons why you can be denied coverage on your home. Here are a few:
- The condition of the property
- The location of the property
- Size of the property
- A geographical characteristic of the property [promimity to water, fault, slope, etc.]
- The age of the structure
- The age of the systems [roof, heat, plumbing, etc.]
- The type of systems [type or roof, type of foundation]
- The value of the home to rebuild
- Past claims history
- The ownership structure of the property
- Use of the property
- Types of animals on the property
What are some ways to get home insurance?
Contact local home insurance agents with many companies to choose from for a quote. This way, you can compare the coverage, discounts, and premiums before deciding which insurance company you want to cover your home.
How can I get home insurance without a credit check?
You cannot get home insurance without a credit check unless your state prohibits using a credit score.
Is there a way to get home insurance with a bad credit score?
Yes, but you may pay a higher premium and higher deductibles for possibly less coverage. On average, homeowners with bad credit usually expect to pay almost twice as much for homeowners insurance as those with good credit.
How to Get Help with Home Insurance Quotes Without a Credit Check
You can’t get home insurance without a credit check outside of living in prohibitive states. But we can offer you a way to get a quote to compare the costs.
Related content:
- 24 Ways to Lower Your Homeowners Insurance Premiums
- What’s the Average Cost Of Home Insurance?
- Choosing a Homeowner’s Insurance Deductible
- 8 Home Insurance Discounts You Might Be Missing
- How to Switch Homeowners Insurance Policies
