Does Your Credit Score Affect Homeowners Insurance?

The cost of homeowners insurance is determined by various criteria, including your location, the type of property you own, the level of coverage you choose, and your credit-based insurance score. While your credit score is unlikely to be the primary element insurers use when determining the price of your coverage, recognizing its importance and how to improve it can help you achieve a lower premium.

How Credit Scores and Insurance Scores Based on Credit Differ

Insurance firms have been permitted to utilize credit-based insurance ratings to help choose who to insure and how much to charge in premiums since the 1990s. Like those used by lenders, credit-based insurance scores are based on your credit report and indicate the relative risk associated with interacting with certain individuals. However, the parallels cease there.

Credit-based insurance scores may have a different range and nomenclature than other credit scores and may be created by companies other than those who calculate loan scores. Additionally, these ratings may take into account other aspects of your credit record or have a different weighting than credit scores used for lending—which makes sense, given that insurance scores are not used for lending.

FICO® and VantageScore® scores developed for lenders forecast the possibility that an individual would fall 90 days behind on debt within 24 months. However, insurance ratings indicate a person's propensity to file an insurance claim.

Do Homeowners Insurance Companies Run Credit Checks?

Numerous homeowners insurance firms will run a credit check and utilize credit-based insurance scores to determine your premiums. On the other hand, your credit-based insurance score will be one of several variables examined.

Additionally, your insurance score will not be the primary factor in determining whether you are denied coverage or charged a higher rate—many states prohibit the use of insurance scores. Additionally, several states rigorously limit or outright prohibit using credit-based insurance scores in connection with homeowner's insurance.

For example, homeowners insurance firms in California, Massachusetts, and Maryland do not consider an insurance score when approving or setting rates. In Oregon, the insurer may use your score to help decide your initial rate, but not for approval, rejection, renewal, or any rate-setting decisions in the future.

If the insurance business uses an insurance score, your debt payment history, current account balances, recent credit applications, and whether you've filed bankruptcy all affect your score. A higher score may make it easier to obtain a low-cost homeowners insurance policy. However, keep in mind that your insurance score is only one of several considerations, and hence its impact will be restricted.