Homeowners’ insurance premiums have skyrocketed in the past year due to rising housing values, expensive materials and a labor shortage. But homeowners with poor credit have been disproportionately affected by higher costs, according to a July 2021 report from insurance platform Mattic.
Consumers with a poor credit score — less than 580 as defined by the FICO form — paid more for homeowners’ insurance. They saw a median home insurance premium of $1,412 for the year 2020-21, which is 29% more than the average premium for a homeowner with an excellent FICO score of 800 or higher, at $1,098.
Average home insurance premiums for consumers with poor credit have risen faster than in higher credit bands. Poor credit homeowners paid 6.4% more for home insurance in 2020-21 than they did in 2019-20, compared to a 3.5% increase for consumers with excellent credit.
- Poor credit (<580): 6.4%
- Fair Credit (580-669): 5.4%
- Good Credit (670-739): 3.8%
- Very good credit (740-799): 4.7%
- Exceptional Credit (800+): 3.5%
With home insurance prices on the rise, it’s more important than ever that you shop with several insurance companies to compare premiums — especially if you have a low credit score. This way, you will know that you are getting the lowest possible premium for your financial situation.
You can get free quotes from many home insurance companies at once on Credible.
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How to get homeowners insurance with bad credit
Your credit score depends on your use of credit, the amount of debt you have and your on-time payment history as reported to the three credit bureaus (Experian, Equifax and Transunion). Having a bad credit history won’t necessarily prevent you from qualifying for homeowners insurance, but it can potentially lead to higher premiums. That’s because most homeowners insurance companies use your credit score to determine your insurance score, which then affects your premium.
In most states, the degree of insurance, driven in part by credit rating, represents the likelihood of a claim being made, and affects the premium the homeowner will pay for coverage.
In fact, 85% of home insurers use a credit-based degree of insurance in states where it is legally permitted, according to the National Association of Insurance Commissioners (NAIC). Some states, including California, Hawaii, Maryland, Michigan and Massachusetts, prohibit or limit insurance companies from using credit scores when determining eligibility for home insurance.
Even if you have a few hits on your credit report, some insurance companies may weigh your credit history differently than others. Homeowners insurance rates vary between insurance companies, which means it is important to get an insurance quote from several insurance companies, even if you have a high credit score.
You can shop for homeowners insurance policies on Credible to make sure you’re getting a fair deal.
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5 Other Factors Affecting Your Home Insurance Premium
While your credit score will likely affect how much you pay for home insurance, it’s not the only factor—and it’s actually not the most important thing insurance companies consider when determining premiums. Here are some other factors that affect the cost of a homeowners insurance policy:
- Your coverage amount. The higher the coverage amount, the higher your premiums will be.
- for your discount. Lower deductibles to reduce home insurance premiums.
- condition of your home. Older homes may have older structures which are a liability. You’ll get a break from your home insurance premiums if you have guarantees like smoke detectors or a home security system. The type of home you own is also taken into consideration. Manufactured homes, for example, are built with cheaper materials and will be more expensive to insure.
- Where do you live. You’ll pay higher premiums if your home is in an area affected by natural disasters such as floods, hurricanes, and hurricanes (although you may have to purchase separate policies to cover these events). Insurance companies will also look at local crime statistics to determine the potential for theft or vandalism.
- History of previous claims. If you have made claims in the past, your premiums will likely be more expensive.
But even if you have excellent credit, a newly built home, and a limited claims history, you may still expect home insurance premiums to increase 3-4%, according to Mattek. That’s why it’s important to check your coverage and compare home insurance quotes every few years, just to make sure you’re not overpaying.
Take a look at your current home insurance policy, and compare rates and coverage at Credible’s online financial marketplace.
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