This guide is general information, not insurance or legal advice. Coverage, prices and rules vary by insurer and by state, so read your policy documents and check with your insurer, a licensed agent or your state’s department of insurance before you decide.
Key facts
- In most states, insurers use credit-based insurance scores to help set home insurance premiums, along with details about the home itself.
- The scores predict the likelihood of filing claims, not your ability to repay a loan, and they weigh credit report information differently than a credit score.
- One analysis found people with poor credit paid an average of $4,290 a year for home insurance, versus $2,490 for people with good credit.
- California, Massachusetts and Maryland ban the use of credit for homeowners insurance, and most other states bar credit as the sole reason for an adverse decision.
- You can get a free credit report every 12 months from each of the three nationwide bureaus and dispute errors that may be raising your premium.
If you live in most of the United States, your credit history can affect what you pay for home insurance. Insurers in those states use a credit-based insurance score to help decide whether to sell you a policy and what to charge. Here is what those scores measure, where the practice is restricted, and what you can do if your credit is working against you.
Does your credit affect your home insurance premium?
In most states, yes. Insurers can check your credit when you apply for a homeowners policy and again at renewal, and they use what they find to calculate a credit-based insurance score. That score is one factor among many, weighed alongside details about the home itself. The price effect can be substantial: one rate analysis found people with poor credit paid an average of $4,290 a year for home insurance, compared with $2,490 for people with good credit, more than 72 percent higher. A Consumer Federation of America study put the gap at roughly $2,000 a year between policyholders with scores of 630 and 820. Some states do not allow any of this, as covered below.
What is a credit-based insurance score, and how does it differ from a credit score?
A credit score, typically between 300 and 850, estimates how likely you are to repay a loan and make payments on time. A credit-based insurance score predicts something else: the chance you will file claims, or that your claims will cost the insurer more than it collects in premiums. Both draw on the same credit report, but they weigh the information differently because they answer different questions. Insurers do not pull your standard FICO score directly. Several companies, including FICO and LexisNexis, produce scores for insurance use, and some insurers build their own.
What goes into the score?
FICO weighs five general areas. The three with published weights are the length of your credit history at 15 percent, your pursuit of new credit at 10 percent, and your credit mix at 5 percent. The other two areas carry most of the weight and relate to your payment history and how much you owe compared with your credit limits.
Some information is off limits by law. The score cannot use personal details such as your race, national origin, gender, age, income or employment history. It also cannot consider the interest rates you are charged, certain types of inquiries such as account reviews or promotional checks, or whether you take part in credit counseling.
Why do insurers use credit to price home insurance?
Insurers treat the score as a measure of risk. A Federal Trade Commission study of auto insurance found that the scores do a strong job of anticipating both how many claims a customer will file and how much those claims will cost the insurer, which lets premiums line up more closely with the level of risk each policyholder brings. The same report raised a fairness concern: African American and Hispanic consumers averaged lower scores than white and Asian consumers, which means the scores likely leave those groups paying more on average. Industry groups argue the scores help assess risk accurately and keep premiums lower. Consumer advocates call the practice unfair and support legislative bans.
Which states restrict or ban the practice?
Only a few states prohibit it outright. California, Massachusetts and Maryland ban the use of credit history in pricing homeowners insurance, and California, Hawaii and Massachusetts ban it for auto coverage. Bills to end the practice have been introduced in other legislatures, including Iowa, New York, Oklahoma and Pennsylvania. Where credit is allowed, most states bar insurers from using it as the only reason to raise rates, deny a policy, cancel coverage or refuse renewal, and many require notice when credit information led to an adverse decision.
What protections do you have when an insurer checks your credit?
State rules differ, but Texas shows what protections can look like. There, insurers cannot count certain items against you, including medical debts that went to collection, credit checks tied to insurance applications, and credit checks from businesses you did not request. Several credit checks within a 30-day period while shopping for a home or auto loan count as one. A Texas insurer that denies coverage or charges more because of your credit report must tell you within 30 days, and you can ask it to make an exception if a protected event hurt your credit. Wherever you live, an insurance credit check is a soft pull that does not affect your credit scores.
How can you find out what your state allows?
Ask your state insurance department. State regulators, who coordinate through the National Association of Insurance Commissioners, set and enforce the rules insurers must follow where you live. You can also ask an insurer directly whether a credit-based insurance score was used to underwrite and price your policy, and which risk category it assigned you to.
What can you do if your credit is hurting your rate?
Start with your credit reports. The Fair and Accurate Credit Transactions Act of 2003 entitles you to a free report every 12 months from each of the three nationwide bureaus: Equifax, Experian and TransUnion. Check them for errors and dispute anything wrong, since federal law requires the bureaus to keep the information they collect accurate. The habits that raise scores are familiar: pay loan and credit card bills on time and keep balances well below your credit limits. If a low score is behind a high premium, ask the insurer whether an exception applies. Because insurers weigh factors differently, comparing quotes from several companies can also pay off.
Smart tip
Order your credit reports before you start collecting quotes. Disputing an error takes time, and starting early means corrections are more likely to be in place before an insurer reviews your file.
Credit is one factor among many, and the rest of the policy matters just as much. Our guide to when to shop around for home insurance covers the moments when comparing quotes makes sense, and insurance shopping terms explains the vocabulary you will see on quote sheets.
Questions we hear
Will shopping for home insurance quotes hurt my credit score?
No. Credit checks for insurance are soft pulls and do not affect your credit scores. In some states, several credit checks within a 30-day shopping window count as a single inquiry.
Which states ban the use of credit in home insurance pricing?
California, Massachusetts and Maryland prohibit it for homeowners insurance. Rules vary elsewhere, so check with your state insurance department.
Can an insurer drop me because of my credit?
In most states, credit cannot be the only reason to deny, cancel or refuse to renew a policy, and many states require the insurer to notify you when credit information was used.
How do I know if credit affected my premium?
Ask the insurance company whether a credit-based insurance score was used to underwrite and price your policy. In states such as Texas, an insurer must notify you within 30 days if it charges more because of your credit report.