Homeowners insurance with bad credit

Can I get homeowners insurance with bad credit?

You can get homeowners insurance with bad credit, but you can expect to pay more in most states. Credit is one of the factors that insurance companies use to determine rates.

It may also be a factor in the decision to deny your application, but in many states it can't be the sole reason. State laws limit the use of credit, and most states don't allow insurance companies to deny coverage solely because of poor credit.

How much does credit score affect insurance?

Credit score can have a major impact on insurance, with homeowners who have bad credit paying an average of $4,138 more a year. That's almost three times as much as a homeowner with excellent credit will pay.

However, it's important to understand that it's not your FICO credit score that affects your insurance rates. While the information used to create your credit-based insurance score comes from the same reports, it's a different score. There is, however, a correlation between a low FICO score and a low insurance credit score.

"The credit score you may be thinking of ﹘the one that represents your credit risk ﹘ is not what we’re discussing here. That’s your Fair Isaac Corporation Score (FICO). Instead, we’re looking at your insurance score, also called a credit-based insurance score (CBI)," Angel Conlin, chief insurance officer, Kin Insurance, says.

Average homeowners insurance rates with bad credit by company

Not every insurance company treats credit the same which means it's possible to get cheap homeowners insurance with bad credit. Below, you will see that Nationwide is the cheapest insurance carrier on average for a homeowner with bad credit, nearly $6,000 less than Travelers on the high end. A major reason for that is that Nationwide's rates are lower overall.

Why does credit score affect the cost of home insurance?

Home insurance rates are based on risk, with insurance companies looking at every possible angle to determine the odds that a claim will be filed. Some of the risk factors are related to the area, like the frequency of storms or the crime rate. Others are individual, and credit score is one of them.

Statistically, people with bad credit tend to file more claims. That makes them a higher risk to insurance companies, and they’re charged a higher rate to make up for that risk. Insurance companies also see people with lower credit ratings as less likely to keep up with home maintenance and pay bills on time.

"Insurance companies connect certain details in your credit history to your insurance risk, and that gives them an idea of how likely you are to file a claim on your policy. Claims cost insurance companies money, and studies have shown people with high credit scores tend to file fewer claims," Conlin says.

The use of credit for insurance rating is a contentious issue. Some states have outlawed the use of credit for calculating home insurance rates. According to the National Conference of State Legislatures, those states are Alabama, Delaware, Florida, Illinois, New Mexico, Oklahoma, Texas, Vermont and Washington.

Homeowners insurance with bad credit vs. other tiers

On average, a homeowner with poor credit will pay $4,138 a year more than a homeowner with excellent credit for their home insurance.

Here’s a look at how average home insurance rates for $300,000 in dwelling coverage, $300,000 liability, and a $1,000 deductible differ by credit tier.

As you can see, someone with poor credit will pay more than double what someone with excellent credit pays.

Average homeowners insurance cost with bad credit by state

Where you live has a major impact on what you pay for homeowners insurance. In general, if you live in a state with high home insurance rates, you can expect rates for poor credit to also be higher.

Note that in states where credit is not permitted as a rating factor, only the average credit rate is displayed.

How to get cheap homeowners insurance with bad credit

If your credit score is affecting your home insurance rates, there are ways to save. Remember that it’s not the only thing that determines your rates; there are ways to get your rate down while you work on your credit.

Raise your deductible. If you’re on a budget, it can be frightening to see that big number, but it can make a big difference in your rates. Put some money aside instead every month to save just in case you do need to pay it, and if that day never comes, the money’s still in your pocket.

Look for discounts. The biggest discount you can qualify for is for bundling your auto and home insurance at the same company, but others are also available. Ask which home insurance discounts are available; don’t assume they’ll be automatically applied. Safety and security devices, paperless billing, and loyalty are a few common options.

Shop around. Don’t think you're out of luck just because one insurance company dings you for your credit. Each company weighs the various factors differently, so shopping around to compare quotes is your best bet for saving money.

How to improve your credit score to lower your home insurance rate

Improving your credit score can save you a lot of money, and not just on home insurance.

"Because your credit impacts so many aspects of your financial life, including insurance, it makes sense to keep your score as high as possible," Conlin says.

Follow these tips to bring up your score and bring down your rates.

Pay your bills on time. This applies especially to credit cards and other regular payments on your credit report. Set up automated payments, so you don’t forget to pay.

Pay down revolving credit. Your debt-to-credit ratio impacts your credit score, and the more you pay down debt, the better that ratio looks.

Check your credit report regularly. Errors on your credit report can be costly, and you won’t know unless you check your report for anything that looks off. You can check your credit for free three times a year, and many credit card companies also offer free regular checks.

Don’t apply for new credit often. When you apply for loans and credit cards, it shows up on your report. Called a “hard credit check” (insurance applications are “soft checks” that don’t affect your score), these checks suggest that you’re looking to borrow money, indicating potential financial trouble.

Methodology

Insurance.com commissioned home insurance rates in all 50 states and from 82 insurance companies through Quadrant Information Services. Rates are based on a home insurance policy with $300,000 in dwelling coverage and liability and a $1,000 deductible. Rates were fielded at four credit tiers: excellent, good, fair and poor.

Helpful home insurance tools and calculators

• Home insurance calculator
• Condo insurance calculator
• Renters insurance calculator
• When to file a home insurance claim