Does bad credit affect homeowners insurance? (2024)

Does bad credit affect homeowners insurance?

Homeowners with lower credit scores often pay higher home insurance premiums because they tend to file more claims than those with higher credit scores.

California

Insurance companies in California don't use credit-based scores or your credit history for underwriting or rating auto policies, or setting rates for homeowners insurance. As a result, your credit won't impact your ability to get or renew a policy, or how much you pay in premiums.

Are insurers completely free to access and use your credit history? A few states prohibit insurers from using consumer credit information – California, Massachusetts and Hawaii for auto insurance and Maryland and Hawaii for homeowners insurance.

Most major car insurance companies like GEICO, Progressive and State Farm factor in your credit score when giving you a quote. However, if you live in California, Hawaii, Massachusetts, or Michigan, you're in luck—these states don't allow credit history to affect your auto insurance rates.

Your insurance will cover accidents like home fires in most cases, but the carrier will most likely deny you if you mention that you failed to maintain your property in any way, which could range from not having an extinguisher in the house to not fixing leaks when you see them.

Most insurance companies using credit information will include it as a factor in determining your rate. For example, someone with a relatively high credit score may pay a lower premium than someone with a relatively low credit score.

Living in a high-risk location, having hazardous home features, home maintenance issues, your home's history of insurance claims, and more can be reasons an insurance company may determine a house to be uninsurable.

High-risk location

If your house is in an area plagued by tornadoes or wildfires, a carrier may consider it too great a risk to insure. The same may be true if your neighborhood experiences a lot of crime. You may be able to mitigate some of that risk by installing security devices or weatherproofing.

Your credit score plays an integral part in determining the rate you pay for car insurance. Better credit often gets you a better rate, and worse credit makes your coverage more expensive. Our research found that poor credit can double insurance rates.

Insurance companies can check your credit history and use it to set your premium unless you live in California, Hawaii, Massachusetts or Michigan.

Why does your credit score matter for insurance?

Statistical analysis shows that those with worse insurance score are more likely to file a claim. Those with better credit scores tend to get into fewer accidents and cost insurance companies less than their worse-scoring counterparts.

In most states, insurance companies use your credit-based insurance score to set rates for auto and renters insurance as well as homeowners insurance. A good driver with poor credit will pay significantly more for car insurance than the same driver with a good credit score, according to a NerdWallet analysis.

Typically, the higher your credit rating, the less you will pay for home insurance in the states where credit is considered a rating factor. Although it is only one factor in setting rates for home insurance, data shows that the credit-based insurance score is an important one.

Yes, Allstate does use your credit score as a factor when determining your car insurance rates, as do most major insurers. However, credit checks by auto insurers do not harm your credit score and are only done in states where it is legal for your credit score to affect your rates.

Insurance adjusters often start with a lowball offer, hoping you will accept it without question. To scare an insurance adjuster, you must demonstrate that you know the true value of your claim. Reject the lowball offer in writing and provide a detailed explanation of why you believe the offer is inadequate.

And when it comes to credit, 850 is the highest the FICO^® Score^☉ scale goes. For more and more U.S. consumers, practice is making perfect. According to recent Experian data, 1.54% of consumers have a "perfect" FICO^® Score of 850.

You should be able to get preliminary rates with your credit still frozen. However, in order to run all of the reports (credit, claims history, violation history, etc.) and finalize your auto insurance rates, many carriers will require a credit check which would require you to unfreeze your credit.

Why is it so difficult to get homeowners insurance?

Inflation and increasingly severe weather driven by climate change have recently upended many local markets for homeowners insurance. Some major insurers have pulled out of states including Florida and California.

If your insurer nonrenewed or cancelled your policy because your house needs repairs or you filed too many claims, you may have difficulty finding an insurance company willing to insure your home.

Most often, this is due to the home being in unlivable condition and/or needing extensive repairs.

Claims History

Most insurance companies will be hesitant to provide coverage if you have a history of excessive claims — more than two claims in the last three years.

Florida and California have seen a mass exodus of insurance companies, but they are not the only states insurance companies are pulling out of. Homeowners in Massachusetts, Louisiana, Colorado, Minnesota, Arkansas, Nebraska and Oklahoma may also struggle to find a policy.