In most states, home insurance companies use your credit rating to determine how much risk you pose. Your credit score can be used to determine the likelihood of you filing claims or the likelihood of paying your bills on time. In general, the lower your credit score, the higher your premium will be. But do not worry. Carriers cannot actually see your credit score. This number is translated into a credit-based insurance score to protect your privacy.
If your credit is low, there are still home insurance options available to you. Understanding how and why your credit can affect your home insurance can help you make more informed choices about your coverage. Bankrate researched the best home insurance companies for people with bad credit. Our investigation may help you find a carrier that matches your situation.
Why does having bad credit negatively affect your premiums?
Insurance companies are in the realm of risk, which means everyone is rated based on the potential amount they represent for the carrier. Credit scores have long been used as an indicator of the level of risk a homeowner presents. Specifically, your credit score can be used to determine your likelihood of:
- File complaints: Carriers have found a link between lower credit scores and a higher likelihood of filing a home insurance claim, which can make someone with a lower credit score more risky to insure.
- Maintain your property: Insurance companies often find that someone with a higher credit score is more likely to maintain their property regularly. As a result, the condition of the home is likely to be better, which can reduce the risk of claims.
- Pay bills on time: Although many home insurance policies are paid from a mortgage escrow account, some homeowners pay their premiums themselves. Policyholders with higher credit scores are generally considered to be more likely to pay on time.
Credit is not used as a rating factor in all states. The following states prohibit the use of credit when pricing home insurance policies, which means your credit level cannot affect the amount you pay for home insurance:
How does credit affect your insurance rates?
As a general rule, the higher your credit score, the lower your insurance premium will be. Your home insurance premiums are calculated based on many factors such as your age, zip code, age of home, deductible amount, local criminal history, and claim history.
Your credit score – or credit-based insurance score – can also be taken into account, and while it’s not the only factor, it can be important. Our research found that policyholders with poor credit pay more than 150% more for home insurance than policyholders with excellent credit. The premiums in the table below show the average annual home insurance premium for $ 250,000 of home coverage for each of the four credit rating levels.
|Bad credit||Average credit||Good credit||Excellent credit|
|Average annual premium||$ 2,870||$ 1,433||$ 1,312||$ 1,125|
However, the impact of your credit on rates varies among insurance companies. The table below shows the difference in premiums for eight companies, all based on owners with bad credit scores. The last column shows how much each premium is higher than the national average cost of home insurance.
|Insurance company||Average annual premium with low credit for housing coverage of $ 250,000||Average annual premium with good credit for housing coverage of $ 250,000|
|Progressive||$ 1,579||$ 1,026|
|At national scale||$ 1,626||$ 1,042|
|United States||$ 1,897||$ 992|
|AmTrust Financial||$ 1,909||$ 1,016|
|American family||$ 2,200||$ 1,295|
|Travelers||$ 2,420||$ 1,269|
|Allstate||$ 2,551||$ 1,458|
|State farm||$ 3,263||$ 1,503|
Keep in mind that smaller insurance companies or regional providers may be able to provide homeowner coverage for the same amount, if not less, than larger national carriers. For example, New Jersey Manufacturers Insurance (NJM) customers with poor credit pay an average annual premium of just $ 508 for home insurance.
PEMCO and Farm Bureau also offer competitive rates for home insurance with low credit. The rates quoted were $ 701 and $ 916 per year for $ 250,000 of housing coverage, respectively.
Can You Get Cheap Home Insurance With Bad Credit?
There are still ways to find cheap home insurance with bad credit. If you have a low credit score and are shopping for home insurance, you may want to:
- Comparison shop: Getting quotes from multiple carriers is one of the most effective ways to find the cheapest home insurance rates for your situation. Comparison purchases allow you to compare premiums, coverage options, discounts, policy features, and third party scores from each company.
- Check out the discounts available: Like auto insurance, home insurance policies are eligible for premium discounts. Ask your carrier to reduce your premiums by bundling your policies and installing safety devices such as security systems, smoke and fire detectors to lower your costs.
- Improve Your Credit Score: As your credit score increases, you may see your home insurance premiums go down. Remember, your credit score will not affect your rates if you live in California, Maryland, Massachusetts, or Washington.
Speaking with a licensed insurance agent can help you decide on the coverage options and discounts that are right for you.
How To Improve Your Credit Score For Better Rates
While fixing bad credit can seem daunting, there are several tactics you can use to improve your credit score. You may be able to improve your credit score by:
- One-off payments: Your on-time payment history is one of the most important parts of calculating your credit score. Late payments can negatively impact your report. Usually, the more consistently you make on-time payments, the better your score.
- Keep credit use low: Your credit usage is the amount of credit you use versus the amount you have available. Many financial experts recommend using less than 30% of the credit available to you. You can reduce your usage by paying off balances and maintaining a high available credit limit.
- Checking for errors in your report: Regular monitoring of your credit report and score can help ensure that the most accurate information is communicated. You are entitled to three free credit reports every year and if you find an error, you can take steps to have the information corrected.
Frequently Asked Questions
What is the best home insurance company?
There is no one home insurance provider that’s the best for everyone. Every homeowner has different needs, wants and circumstances that will affect their choice in insurance companies. However, some carriers stand out as being particularly attractive. Bankrate research found USAA, Lemonade, Travelers, AAA, Amica, and Allstate to be among the top home insurance companies in the country.
How much does home insurance cost?
Your premium is based on a wide variety of personal factors in addition to your credit score. Your age, location of your home, selected coverage options, and applied discounts all influence the amount you pay. The average cost of home insurance for $ 250,000 of home insurance coverage is $ 1,312 per year.
Is home insurance legally compulsory?
Unlike auto insurance, home insurance is not legally required in any state. However, most lenders require that you purchase a policy if you are financing your home. Depending on where you live, your mortgage lender may also require you to purchase a separate flood insurance policy.
If you own your home, you may still want to purchase home insurance. A policy can help protect your financial health if your home is damaged or destroyed.
Can an insurance company deny coverage because of my credit?
In some states, yes, you may be denied coverage because of your credit. A low credit score can mean that a company considers you too high a risk to insure, which could cause the carrier to deny coverage. However, some states do not allow this practice. If your coverage has been denied because of your credit rating, you may need to get quotes from other insurers to find the right company for you.
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: The rates have been calculated based on the following insurance credit levels assigned to our owners: âpoor, average, good (basic) and excellentâ. Insurance credit levels take your official credit scores into account, but are not solely dependent on this variable. The following states do not allow credit to be a factor in determining home insurance rates: California, Maryland, Massachusetts, Washington.