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In most states, your credit history and credit-based insurance scores can impact whether you're offered a policy and how much you'll pay for homeowners insurance. But other factors, such as where you live, the type of home and the amount of coverage may have a bigger impact on your overall insurance costs.
Even if it's not the main factor in determining your rate, it can be important to understand how credit-based insurance scores work and why improving your credit might help you save money.
Do Home Insurance Companies Check Your Credit?
Many homeowners insurance companies will check your credit or use credit-based insurance scores when you initially apply or want to renew your policy.
However, your credit-based insurance score will be one of many factors that insurance companies consider. And generally, your score won't be the only factor leading to you being denied or receiving a higher rate. In fact, many states don't allow insurance companies to use scores this way.
Some states also strictly regulate or completely outlaw the use of credit reports and credit-based insurance scores in relation to homeowners insurance, including California, Maryland, Michigan, Massachusetts and Oregon.
How Credit Scores and Credit-Based Insurance Scores Differ
Consumer credit scores and credit-based insurance scores are both based on the information in your credit reports. However, the scores are designed to predict different outcomes.
Credit scores for lending aim to predict the likelihood that someone will miss a bill payment by 90 or more days during the next 24 months. Credit-based insurance scores, on the other hand, predict the likelihood that someone will file insurance claims or that the claims they file will cost the insurance company more money than it collects in premiums.
Credit scores and credit-based insurance scores may also use different specific factors to determine your score. But your debt payment history, amounts owed, how long you've used credit, the types of credit accounts you have and recent credit activity can affect both types of scores.
With either type of credit score, a higher score may make qualifying easier and result in a lower rate. But remember, your insurance score is only one of many factors, so its impact will be limited. And unlike with lending decisions, some states prohibit insurance companies from turning down an applicant because they don't have a credit score.
What Affects Homeowners Insurance Premiums?
Shopping for insurance and getting quotes from multiple companies won't hurt your credit and it can be important for saving money. Insurance companies may offer you different rates and coverage depending on a wide range of criteria. For instance, your premiums could depend on:
- Location: Your home's location and neighborhood characteristics can be important, as living close to a fire station or in a low-crime area, for example, can lead to lower premiums.
- The home's age, renovations and materials: The structure itself is also important, as an old home that could use a new roof may pose a higher risk to insurers than a newly built or remodeled home. Similarly, the building material and construction methods can impact premiums as these factors affect the home's vulnerability to fire or other covered hazards.
- Attractive nuisances: Homeowners insurance also includes liability coverage, which pays out when someone is injured on your property. As a result, trampolines, pools and other potentially dangerous features could increase your premiums.
- Discounts: Insurers may offer discounts if you install different types of safety and security equipment, such as smoke detectors, deadbolts and burglar alarms. You may also be able to get a discount if you're retired (as you may be home more often) or purchase multiple types of insurance from the same company.
- Your policy's coverage: Your coverage amount, the types of coverage you purchase, add-on policies and policy modifications will all directly impact your premiums.
- Your policy's deductible: Your insurance won't cover the deductible portion of your coverage. A lower deductible means your insurance will pay out sooner, but it will also lead to higher premiums.
Other factors can also play into how much you'll pay in premiums, such as your history of filing home insurance claims, your marital status and whether you have a certain breed of dog. You may also want to buy separate flood or earthquake coverage, or an add-on for these coverages, as your homeowners insurance policy might not automatically include this coverage.
Even with all else being equal, you could get varying rates from different insurers, which is why it's usually smart to shop around for an insurance policy. You can also use insurance brokers and insurance comparison tools to quickly get and compare policies from multiple companies.
Can You Get Homeowners Insurance With Bad Credit?
You may be able to get homeowners insurance with bad credit, and insurance companies might not be allowed to deny you coverage if you don't have any credit. In some states, they also can't deny a renewal because of changes in your credit.
However, improving your credit may help you qualify for lower insurance premiums—for homeowners and other types of insurance, such as auto insurance. It can also lead to lower rates on loans and credit cards and may open up an opportunity to save money by refinancing a mortgage or other types of debt.
How to Improve Your Credit
Focusing on your credit can improve your credit-based insurance scores and your other credit scores. You can do this by taking a few key actions that can improve both types of scores:
- Pay your bills on time
- Pay down loan balances
- Keep credit card balances low or pay them off each month to maintain a low utilization rate
Improving your credit can also be a waiting game because a longer credit history can lead to higher scores, and the impact of negative items decreases over time. But you can look for ways to build credit while you're waiting, such as opening and using a credit card or taking out a credit-builder loan and making your payments on time.
Check Your Credit for Free
Your credit reports contain the underlying information that impacts all your credit-based insurance scores and standard credit scores. You can check your Experian credit report and score for free and monitor them for changes. While the free score is a FICO® Score☉ 8, not a credit-based insurance score, you may want to shop for lower-rate loans and new insurance policies if you see your score is rising.