Homeowner's Insurance Costs Nearly Twice as Much with Poor Credit

NEW YORK (MainStreet) — Homeowners with poor credit pay 91% more for homeowner's insurance than people with excellent credit, according to insuranceQuotes.com.

People with poor credit pay at least twice as much as people with excellent credit in 37 states and Washington, D.C. West Virginia's 208% increase is the highest in the U.S., followed by Virginia at 186%, Ohio at 185% and Washington, D.C. at 182%.

Homeowners with median credit pay 29% more than those with excellent credit.

Read More: Top States to Save on Auto and Homeowner's Insurance

The greatest differences between excellent and median credit were observed in Montana (65%), Washington, D.C. (60%) and Arizona (55%).

"This is another example of why credit is such an important part of your financial life," said Laura Adams, senior analyst at insuranceQuotes.com. "Maintaining a good credit history suggests that you're a less risky customer and can lead to several hundred dollars in annual homeowner's insurance savings."

Read More: Average Homeowner's Policy May Not Cover Violent Corpse Explosion

Many consumers are not aware that your credit score plays a big factor in the cost of your home insurance. Improving your credit usually takes a minimum of six months to a year, she said.

"Credit is definitely playing a big role in what people are paying in home insurance and can put an additional $600 or more back in your pocket each year," Adams said.

Consumers should obtain a copy of their credit report for free at www.annualcreditreport.com. Mistakes might have been made by creditors and could be lowering your credit score without you knowing it.

"If you have an error, you can get it corrected and start a dispute," she said. "It is pretty easy for the most part."

Three states prohibit insurers from using credit to calculate homeowner's insurance premiums: California, Massachusetts and Maryland. While insurance companies are technically allowed to consider homeowners' credit scores in Florida, insuranceQuotes.com found that credit does not typically affect premiums.

Florida's hurricane-prone location means that homeowners pay the highest homeowner's insurance rates in the nation of $1,933 per year, which is almost double the national average of $978, according to the National Association of Insurance Commissioners. Since hurricanes play such a major role in Florida's homeowner's insurance market, credit is a lesser concern.

According to the NAIC, about 85% of home insurers use credit-based insurance scores in states where it's allowed.

insuranceQuotes.com commissioned Quadrant Information Services to examine how credit affects homeowner's insurance premiums. Quadrant calculated rates using data from six major carriers representing approximately 60% of market share in all 50 states and Washington, D.C.

To see the findings for all 50 states and Washington, D.C., click here.

 

Shopping different carriers is a good way to save money, because not all insurance companies look at credit the same way and some factor it differently, Adams said.

"Obtain different quotes so you can see what is going on in the marketplace, but don't switch on price alone," she said. "It needs to be a significant savings if you are going to switch to an unknown new company."

The best way to improve your credit is to pay your bills on time, said Jeff Golding, CEO of WilliamPaid, a Chicago-based company which allows people to build credit through paying their rent online for free.

"It's not an overnight remedy, but monitor your credit," he said. "Credit is an indicator of your overall financial health and is a reflection of how responsible you are in general. Creditors look to see if you are a low or high risk to them."

Homeowners can obtain other discounts if they live close to a fire station or installed a security system, new roof, doors or windows that are safer. Bundling your home insurance with your car insurance by using the same carrier can save money is a "smart move," Adams said.

Consumers who have refinanced their mortgages should let their insurance company know because it is likely they would qualify for a lower rate, she said.

Avoid filing small claims under $1,000 because your homeowner's insurance will not only rise, but also the increase will last for several years, Adams said.

"Only use insurance when you absolutely need to because you want to make sure it is worthwhile," she said. "You need to really think hard about it and get enough of a payout to make it worthwhile."

--Written by Ellen Chang for MainStreet

Show Comments

Back to Top