Homeowners insurance for people with bad credit

Home insurance companies in most states use your credit score to determine how much of a risk you pose. Your credit score may be used to predict whether you will file claims or whether you will pay your bills on time. In general, the lower your credit score, the higher your insurance premium. But don't be concerned. Carriers do not have access to your credit score. To protect your privacy, that number is converted into a credit-based insurance score.

Even if you have bad credit, there are still home insurance options for you. Understanding how and why your credit affects your home insurance policy may enable you to make more informed decisions about your coverage. StrongInsurance investigated the best home insurance companies for people with poor credit. Our investigation may be able to assist you in locating a carrier that is suitable for your needs.

Why does having bad credit negatively affect your premiums?

Insurance companies are in the risk business, which means that everyone is evaluated based on the potential amount of risk they pose to the carrier. Credit scores have long been used as one indicator of how risky a homeowner is. Your credit score, in particular, may be used to determine how likely you are to:

  • Claims: Carriers have discovered a link between lower credit scores and a higher likelihood of filing a homeowners insurance claim, which can make someone with a lower credit score riskier to insure.
  • Maintain your property: Insurance companies often believe that someone with a higher credit score is more likely to maintain their property on a regular basis. As a result, the home's condition is likely to be better, potentially lowering the risk of claims.
  • Pay bills on time: While many homeowners' home insurance policies are paid through a mortgage escrow account, some homeowners pay their premiums themselves. Policyholders with higher credit scores are thought to be more likely to pay on time.

In some states, credit is not used as a rating factor. The following states prohibit the use of credit when rating home insurance policies, which means that your credit score cannot influence how much you pay for homeowners insurance:

  • California
  • Maryland
  • Massachusetts
  • Washington

How does credit affect your insurance rates?

In general, the higher your credit score, the lower your insurance premium. Your homeowners insurance premiums are determined by a variety of factors, including your age, ZIP code, home's age, deductible amount, local crime history, and claims history.

Your credit score — or credit-based insurance score — may also be taken into account, and while it is not the only factor, it can be significant. According to our research, policyholders with poor credit pay more than 150 percent more for home insurance than policyholders with excellent credit. The premiums in the table below represent the average annual premium for $250,000 in dwelling coverage for each of the four credit rating tiers.

 

Poor credit

Average credit

Good credit

Excellent credit

Average annual premium

$2,870

$1,433

$1,312

$1,125

 

However, the effect of your credit on rates varies depending on the insurance company. The table below compares premiums from eight different companies, all based on homeowners with bad credit. The final column shows how much each premium differs from the national average cost of home insurance.

Insurance company

Average annual premium with poor credit for $250K dwelling coverage

Average annual premium with good credit for $250K dwelling coverage

Progressive

$1,579

$1,026

Nationwide

$1,626

$1,042

USAA

$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

 

Remember that smaller insurance companies or regional providers may be able to provide homeowners coverage for the same, if not less, than the large national carriers. Customers with poor credit, for example, pay an average annual premium of $508 for home insurance through New Jersey Manufacturers Insurance (NJM).

PEMCO and Farm Bureau also provide competitive rates for home insurance for people with bad credit. The quoted rates for $250K in dwelling coverage were $701 and $916 per year, respectively.

Can you get cheap homeowners insurance with bad credit?

There are still options for finding low-cost homeowners insurance even if you have bad credit. If you have a low credit score and are looking for home insurance, you should consider the following:

  • Comparison shop: Obtaining quotes from multiple carriers is one of the most effective ways to find the most affordable homeowners insurance rates for your specific situation. Comparison shopping allows you to compare the premiums, coverage options, discounts, policy features, and third-party scores of each company.
  • Examine available discounts: Just like auto insurance, homeowners insurance policies are eligible for premium discounts. Inquire with your carrier about lowering your premiums by bundling your policies and installing safety features such as security systems, smoke and fire alarms.
  • Improve your credit score: As your credit score rises, your home insurance premiums may fall. Just keep in mind that if you live in California, Maryland, Massachusetts, or Washington, your credit score will have no effect on your rates.

Speaking with a licensed insurance agent may assist you in determining which coverage options and discounts are appropriate for your situation.

How to improve your credit score for better rates

While repairing bad credit may appear to be a daunting task, there are several strategies you can employ to improve your credit score. You may be able to raise your credit score by doing the following:

  • Making on-time payments: One of the most important aspects of your credit score calculation is your history of making on-time payments. Late payments can have a negative impact on your report. Generally, the longer you consistently make on-time payments, the better your credit score will be.
  • Maintaining a low credit utilization: Your credit utilization is the amount of credit you use compared to the amount of credit you have available to you. Many financial experts advise using no more than 30% of your available credit. Paying down balances and maintaining a high available credit limit can help you reduce your utilization.
  • Checking your report for errors: Monitoring your credit report and score on a regular basis can help ensure that the most accurate information is reported. You are entitled to three free credit reports per year, and if you discover an error, you can take steps to have it corrected.

Frequently asked questions

What is the best homeowners insurance company?

There is no single home insurance company that is best for everyone. Each homeowner has unique needs, desires, and circumstances that will influence their insurance company selection. Nonetheless, some carriers stand out as particularly appealing. According to StrongInsurance research, the best home insurance companies in the country are USAA, Lemonade, Travelers, AAA, Amica, and Allstate.

How much does homeowners insurance cost?

In addition to your credit score, your premium is determined by a number of personal factors. Your age, home location, coverage options chosen, and discounts applied all have an impact on how much you pay. The average annual cost of homeowner insurance for a $250,000 dwelling is $1,312.

Is home insurance legally required?

In contrast to auto insurance, homeowners insurance is not required by law in any state. However, if you are financing your home, most lenders will require you to purchase a policy. Your mortgage lender may also require you to purchase a separate flood insurance policy, depending on where you live.

Even if you own your home outright, you should consider purchasing home insurance. If your home is damaged or destroyed, a policy can help protect your financial health.

Can an insurance company deny coverage because of my credit?

Yes, in some states, you may be denied coverage because of your credit. A low credit score may indicate that a company considers you too risky to insure, which may result in the carrier denying coverage. However, some states prohibit this practice. If your coverage has been denied due to your credit score, you may need to obtain quotes from other insurance companies in order to find the best company for you.

Methodology

StrongInsurance analyses 2021 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. using Quadrant Information Services. The rates quoted are based on 40-year-old male and female homeowners with no claims history and the following coverage limits:

  • Coverage A, Dwelling: $250,000
  • Coverage B, Other Structures: $25,000
  • Coverage C, Personal Property: $125,000
  • Coverage D, Loss of Use: $50,000
  • Coverage E, Liability: $300,000
  • Coverage F, Medical Payments: $1,000

In addition, the homeowners have a $1,000 deductible as well as a separate wind and hail deductible (if required).

These are sample rates and should only be used for comparison. Your quotes will be unique.