Insurance Cost Analysis
Why Bad Credit Can Increase Your Home Insurance Cost — Understanding the Impact & How to Improve It
Home insurance is designed to protect what is often a family's largest investment — their home. But while people expect insurance prices to depend on location, home age, or claim history, many are surprised to learn that credit score plays a major role in home insurance premiums across most of the United States.
Even though the risk of a fire, storm, or burglary doesn't change based on someone's credit rating, insurers consider credit an indicator of how likely a policyholder is to file a claim. And research shows the cost difference can be significant.
How Much More Do Homeowners With Poor Credit Pay?
In states where credit scoring is allowed in insurance pricing, homeowners with poor credit scores (below ~580) pay around 35% more than homeowners with very good credit (740–799 range) on average.
In states that limit or partially restrict credit-based pricing, the difference still exists — but drops to about 15%.
In practical terms:
| Credit Score Level | Average Extra Cost in States WITH Restrictions | Average Extra Cost in States WITHOUT Restrictions |
|---|---|---|
| Poor vs Very Good | ~$174/year difference | ~$496/year difference |
| % Price Increase | ~15% | ~35% |
This means two families with similar homes, in the same area, could pay dramatically different premiums — based only on credit score.
Why Do Insurance Companies Look at Credit?
Even though credit has nothing to do with storms or disasters, insurers argue that credit predicts behavior, specifically the likelihood of filing claims.
Studies, including those from the Federal Trade Commission, show that homeowners with lower credit scores tend to file claims more frequently. Why that happens is debated, but experts believe several factors contribute:
Homeowners with savings or financial stability may choose to pay for smaller repairs out-of-pocket rather than file a claim.
Someone struggling financially may depend on insurance more often because paying repair bills personally is harder.
Missed payments or high debt may indicate overall financial stress — increasing claim probability statistically.
Insurance companies typically don't explain the reasoning publicly — they simply follow the risk data, and credit-based pricing models continue to be widely used.
How Do Insurers Calculate Credit-Based Insurance Scores?
Insurance scoring is separate from the credit score used for mortgages or loans — but based on similar financial behaviors.
Factors used in insurance scoring include:
- Payment history
- Debt levels
- Credit utilization
- Length of credit history
- New credit inquiries
FICO even has a specific insurance score range that goes up to 900, higher than standard credit scoring.
Improving your credit score helps lower insurance premiums, and the steps are similar to improving regular credit:
- Pay bills on time
- Keep balances low
- Reduce revolving debt
- Avoid unnecessary hard inquiries
- Maintain older accounts when possible
A strong score signals financial stability — which insurance companies reward.
Is It Fair? The Ongoing Debate
Many states (Maryland was first in 2002, followed by California, Michigan, Massachusetts, Oregon, and a few others) have passed laws limiting the use of credit in insurance pricing.
Consumer advocates argue:
- It makes homeownership more expensive for people with financial challenges
- Low credit homeowners often already pay higher mortgage interest
- This creates a double burden, especially for families working to recover financially
Insurers counter:
- Credit data allows fair risk-based pricing
- Removing credit means higher-risk homeowners could raise costs for everyone else
Both perspectives carry weight — and the debate continues.
How Homeowners Can Reduce Insurance Costs Even With Low Credit
Credit isn't the only factor affecting premiums. Homeowners with lower credit can still lower costs using strategies like:
Bundling home + auto policies
Increasing deductibles (if financially safe to do so)
Installing home security systems & smart safety equipment
Avoiding unnecessary small claims
Comparing quotes across multiple carriers annually
Working with an independent agency like ProGen Insurance gives you access to multiple carriers — increasing your chance of finding a better rate.
Will Improving Your Credit Lower Your Premium Over Time?
Yes — as credit improves, many insurers re-evaluate rating at renewal. A homeowner who raises their credit score from poor to fair to good may gradually see lower premiums.
Reviewing your policy every 12 months is recommended, especially if:
Your credit score increased
You paid down debt
You refinanced or improved your financial standing
Just because your rate was high once doesn't mean it must stay that way.
Need Help Finding Better Home Insurance Rates?
At ProGen Insurance, we help homeowners compare rates, understand pricing, and find coverage that protects them without overpaying.
ProGen Insurance – Insurance & Financial Protection Solutions
Call/Text: (346) 387-9791
Email: contact@nexzenfinancials.com
Whether you have excellent credit or are rebuilding it — we can help you get the right coverage at a fair price.