Homeowners Insurance: Your Credit and Your Premium

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Chris Tepedino is a feature writer that has written extensively about auto insurance for numerous websites. He has a college degree in communication from the University of Tennessee and has experience reporting, researching investigative pieces, and crafting detailed, data-driven features. His works have been featured on CB Blog Nation, Flow Words, Healing Law, WIBW Kansas, and Cinncinati.com. ...

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Reviewed by Rachael Brennan
Licensed Insurance Agent

UPDATED: Jul 19, 2021

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If you live in the United States, then you know that every major financial decision you make revolves around your credit history. Whether you’re buying a car, arranging a payment plan for expensive purchases, or even buying a house, your credit rating will determine how much you pay, any applicable interest rates, and whether or not you get a good deal on your purchase.

Likewise, insurance companies strive to make sure that you have a reasonable level of creditworthiness. They want to know that you can reliably pay your premiums on time, and in full. But homeowners insurance works a little bit differently than most other industries, with regard to how they evaluate your credit history. Below, we’ll explain the nuances of this practice as it applies to your homeowners insurance policy.

Your Credit Score

Your total credit score, as evaluated by the major credit rating agencies in the US, is also known as your FICO score. Unlike some credit reports, your FICO is an evaluation of your entire credit history. It evaluates things like how much debt you have, your debt-to-credit ratio, how many late bill payments you have, and the number of times a company or other financial entity has ran a credit check on you.

There are two different ways that insurance companies might evaluate your credit when putting together a policy for you. These are called “soft” and “hard” credit checks. Soft checks don’t leave a permanent mark on your history, and are usually the preferred method of determining your creditworthiness as far as insurance companies are concerned. Hard checks, on the other hand, are more thorough and will leave a permanent mark on your report. Too many hard checks, and your FICO score will go down. In most states, insurance companies are not allowed to run a hard check on your credit when either determining your premium or deciding whether to offer you a policy. This is a convenient compromise, seeing as how most people need to get several quotes in order to get the best insurance deal.


Homeowners Insurance by Credit Score

Legend:

Average Credit

Excellent Credit

Mississippi

Louisiana

Alabama

Oklahoma

Texas

National Average

25

50

75

100

125

150

175

200

225

$244

$173

$242

$172

$239

$170

$234

$166

$228

$162

$187

$133


 
If you aren’t sure about the laws in your state, you should ask any prospective insurance provider how they evaluate your creditworthiness before you sign any paperwork. You will receive an evaluation both before your provider issues a policy, and when they determine what premium to charge you. And if you feel you are being evaluated unfairly, be sure to contact your state’s department of insurance for help.

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Your Insurance Score

Your insurance score is a type of soft credit check that most providers will perform when evaluating your credit history. Soft checks are helpful to an insurer because they determine whether you are likely to file a claim as well as how reliable you might be with regard to paying your premiums on time. In order to protect you, the consumer, there are some attributes that are prohibited from factoring into your insurance score. Those include Race, ethnicity, nationality, religion, gender, age, marital status, income, occupation, employment history, your home’s location, and information which is absent from your credit report. Again, if you feel your potential insurance provider is breaking any laws or considering any of the prohibited factors mentioned here, be sure to contact your state’s department of insurance for assistance.


Homeowners Insurance by Credit Score

Legend:

Average Credit

Excellent Credit

North Dakota

South Dakota

Wisconsin

North Carolina

Montana

National Average

15

30

45

60

75

90

105

120

135

150

165

180

$115

$82

$118

$84

$130

$92

$134

$95

$145

$103

$187

$133

Your CLUE Report

Your clue (Comprehensive Loss Underwriting Exchange) report works in two different ways, depending on your previous home owning experience. If you have owned a home before, your clue report will give your insurance company details about your previous experience with homeownership. Specifically, the report lists the claims you’ve filed, what type of claims they were, and how the issue was resolved. If you have several claims listed on your CLUE report, or if you have filed the same type of claim several times, that might raise a red flag with your insurance provider.

Likewise, the home you are about to purchase (or maybe you’ve just purchased it) will have it’s own CLUE report from the past 7 years of ownership. Whatever claims the previous owner filed will give your insurance provider a clue – pun intended – as to what claims you might be expected to file in the future. If they expect you might be filing expensive claims, especially in the near future, it may have the unfortunate consequence or raising your premium. Conversely, owning a newer home that will be less likely to need repairs or replacements in the near future will help lower your annual premiums.

What This Means For You

At the end of the day, all of these factors will have a significant influence on your annual home insurance premium. On average, the difference between a good and a great credit score is right around 30%. And, depending on how expensive insurance rates are in your area, that could add up to some huge savings.


Homeowners Insurance by Credit Score

Legend:

Average Credit Score

Excellent Credit Score

Florida

Connecticut

Oklahoma

Colorado

Louisiana

150

300

450

600

750

900

1050

1200

1350

$1471

$1044

$1329

$944

$1413

$1003

$1298

$922

$1391

$988


 
If you want to improve your credit score, the best time to start is either before or in the early stages of the home buying process. In the short term, make sure you:

  • Check your credit report, early and often. Staying on top of any changes to your credit report is essential for keeping your rating high. Checking your report can also help you spot errors, such as late payments that were paid on time or errors in the amount of debt you have. You can easily dispute erroneous blemishes on your credit score by contacting the credit bureau.
  • Reduce your overall debt. The lower your debt balance, the better you will look in a creditor’s eyes. If you have some extra money to help reduce your balances, consider using it to lower your total debt and wait for your credit score to increase before looking for a home.
  • Payment reminders. These can be your best friend, because they help you avoid accidentally paying your bills late, which keeps your credit score in tip-top shape.

We know we’ve just given you a lot of information to digest, but just remember: education is power. The more you understand about how your homeowners insurance company comes up with your final premium, the better prepared you will be to negotiate the lowest rate!

Se Also:

Homeowners Insurance 101

Types of Homeowners Insurance Coverage

Home Insurance Discounts

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