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How much you pay for homeowners insurance can depend on many factors, including where you live, the type of home you have, the amount of coverage you want and your credit-based insurance score. While your credit likely won't be the main factor insurers consider when pricing your coverage, understanding the role it plays as well as how to improve it can help you secure a cheaper premium.
How Credit Scores and Credit-Based Insurance Scores Differ
Since their development in the 1990s, insurance companies have been able to use credit-based insurance scores to help determine who to offer insurance to and how much to charge in premiums. Similar to the credit scores that lenders use, credit-based insurance scores are based on your credit report and show the relative risk of working with different people. But that's just about where the similarities end.
Credit-based insurance scores may have different ranges and names than other types of credit scores and be calculated by different companies than the ones that calculate lending scores. These scores may also consider different parts of your credit report or use different weighting than the credit scores used for lending—which makes sense, because insurance scores have a different goal.
The scores that FICO® and VantageScore® develop for lenders predict the likelihood that someone will be 90 days past due on a bill within the next 24 months. But insurance scores predict the likelihood that someone will file an insurance claim.
Do Homeowners Insurers Check Your Credit?
Many homeowners insurance companies will check your credit and use credit-based insurance scores. However, your credit-based insurance score will be one of many factors that are considered.
Also, your insurance score generally won't be the sole factor leading to you being denied or receiving a higher rate—many states don't allow insurance scores to be used this way. Some states also strictly regulate or completely outlaw the use of credit-based insurance score in relation to homeowners insurance.
For example, if you live in California, Massachusetts or Maryland, homeowners insurance companies don't use an insurance score as part of the approval or rate-setting decision. In Oregon, the insurer might be able to use your score to help determine your initial rate, but not for approval, denial, renewal or future rate-setting decisions.
If the insurance company does use an insurance score, your debt payment history, current account balances, recent credit applications and whether you've declared bankruptcy can all impact your score. A higher score may make it easier to get a homeowners insurance policy at a low rate. But remember, your insurance score is only one of many factors, so its impact will be limited.
What Else Impacts Your Homeowners Insurance Premiums?
In addition to an insurance score, your homeowners insurance premiums will be based on many different factors:
- Location: Your home's location and nearby resources can be important, as living close to a fire station or in a low-crime area 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, if you're married 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.
How Much Does Homeowners Insurance Cost?
As stated above, many factors affect much you'll pay for homeowners insurance. Additionally, you're likely to find different rates from different insurers, even with all else being equal. This is why it's usually smart to shop around for an insurance policy with coverage and a premium that works for you.
A 2019 report from the National Association of Insurance Commissioners found the average annual home insurance premium was $1,211 in 2017—an increase from $1,192 in 2016. The NAIC gathered the data from the department of insurance in every state except California and Texas.
Improve Your Credit to Qualify for Better Homeowners Insurance Rates
You may be able to get homeowners insurance with bad credit, but improving your credit may help you qualify for lower insurance premiums. It can also lead to lower rates on loans and credit cards, and may open up an opportunity to save more money by refinancing your mortgage.
Fortunately, many of the moves you can make to improve your credit-based insurance scores will also improve your other credit scores. Focus on:
- Paying your bills on time
- Paying down debts
- Maintaining a low utilization rate
Improving your credit can also be partially a waiting game because a longer credit history can lead to higher scores, and the impact of negative items decreases over time. You can look for ways to build credit while you're waiting, such as opening a credit card (if you don't have one) 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 more standard credit scores. You can check your Experian credit report for free and monitor it for changes. You can also sign up for free credit score tracking. While the free score is a FICO® Score☉ 8, not a credit-based insurance score, you may want to shop around for lower-rate loans and new insurance policies if you see your score is rising.