Updated July 21, 2021
Reading time: 6 minutes
While your credit score and credit history play a big role in home insurance costs, getting a home insurance quote should not directly affect your credit score.
For many people, having a good credit score can be an immense help in buying a home or car or securing insurance coverage. If you have bad credit, you might expect your insurance costs to be more expensive, but you’re not without recourse in terms of gaining coverage. Overall, there are a handful of ways in which your credit score can affect your home insurance expenses.
And don’t forget that you can always compare home insurance policies by using a tool like Insurify. One form gets you 6+ quotes from top insurers in your area without sharing any of your personal information.
Fortunately, getting home insurance quotes will not directly affect your credit score. While it is true that insurance providers will perform a credit check, the type of credit check they’re performing is known as a “ soft pull ” or “ soft inquiry.” This type of checks does not affect your credit score and isn’t visible to lenders, though soft pulls will show up on your personal credit reports.
On the other hand, “ hard pulls ” or “ hard inquiries ” are a type of credit reporting that can negatively impact your credit score and occur when applying for an auto loan, student loan, personal loan, mortgage, or credit card. Most insurance companies will use one of a few major credit bureaus ( Experian, TransUnion, and Equifax ) to pull the credit information. Though a hard inquiry will remain in your credit history for about two years, the hard inquiry will likely stop affecting your credit score in less than a year.
Insurance companies will check your credit in order to gauge how much of a risk you are to insure. Generally speaking, people with a higher credit score tend to file less expensive and less frequent claims and pay bills on time. On the other hand, homeowners with poor credit scores tend to miss bill payments and file more frequent and more expensive insurance claims. When it comes to insurance costs, those with lower credit scores will typically pay higher insurance premiums, while those with higher credit scores will benefit from lower home insurance rates and other potential pluses.
Luckily, one’s credit score isn’t the only factor that can impact your insurance costs. Things like geography, crime rate, property value, and a myriad of other things can affect the overall cost of your insurance. There are plenty of things you can do to take action and lower your insurance rates.
Also known as an insurance credit score, a credit-based insurance score is used by insurers to determine how likely you will be to file a claim. The more likely you are to file a claim, the more expensive your monthly premium might be. The system used to determine a credit-based insurance score is somewhat similar, but not entirely identical, to the process used to determine a regular/ FICO credit score, which is used to apply for a mortgage, credit card, or auto loan.
The weighting of a few factors differs between the two processes, but for a credit-based insurance score, FICO uses the following factor weights:
Payment History: Weighted for 40 percent of the overall insurance score, payment history indicates how often and how much you paid down your debts. The more payments you miss, the more your insurance score suffers.
Outstanding Debt: Weighted for 30 percent of your insurance score, this metric measures how much debt you currently have.
Credit History Length: Weighted for 15 percent of your insurance score, your credit history length is the amount of time you’ve had an open line of credit. The longer your credit history, the higher your insurance score.
Pursuit of New Credit: Weighted for 10 percent of your insurance score, this metric indicates whether or not you have recently applied for new lines of credit.
Credit Mix: Weighted for 5 percent of your insurance score, this indicates the credit you currently have in the form credit cards, mortgages, or auto loans.
Generally speaking, practicing good financial habits will translate to high credit scores and high insurance credit scores. However, the following things will definitely create a negative impact on your insurance credit score:
A Short/Nonexistent Credit History: Everyone has to start somewhere, but having a short credit history does not give insurance companies much to work with in determining how risky you will be to insure. The longer your credit history, the higher your insurance credit score is likely to be.
Hard Inquiries: A single hard inquiry when applying for a loan or credit card will typically only shave a few points off your credit score. However, clusters of hard inquiries in a short span of time can be an indicator of multiple application denials, which in turn indicates that your financial situation is too tenuous or unreliable to approve.
Missing/Late Payments: Making debt/ credit card payments late or not at all is a surefire way to make both your regular credit score and your insurance credit score suffer. Practicing good financial habits and paying bills on time are the best ways to avoid this.
Credit Utilization: Also known as “ use of credit,” this measures how well you manage any credit card balances. Having high credit card balances compared to the account’s credit limits typically indicates poor financial health and low credit scores.
The practice of building good credit does not necessarily occur overnight. It takes years of practice and financial diligence to build the habits needed to establish good credit for yourself. If you want to lower your insurance rates by getting a higher credit score, you can do the following:
Limit hard credit pulls. Spacing out applications that require hard credit pulls can help give your credit score a bit of time to recover. Waiting six months or more between hard pulls can keep those pulls from clustering and further lowering your credit score.
Pay bills on time. Consistently paying bills prior to their due dates is the best way to build a solid credit history.
Pay off credit cards. While it may not always be doable or within your budget, fully paying off credit cards is invariably good for your credit score. The longer your credit card holds a given balance, the lower your credit score can go.
Pay down balances. If you have a high balance of debt (whether it’s loan or credit card debt), paying down that balance shows that you are being active in trying to better your debt situation. The more you pay down balances, the better your credit score can be.
Become an authorized user. If you are close to someone who has a lightly used line of credit, you can ask to become an authorized user of that card. Being an authorized user and using that line of credit responsibly can help you build a solid credit history.
View your credit-based insurance score. While getting a full report for your credit-based insurance score isn’t necessarily easy, getting a copy can help determine whether your home or car insurance premium was affected by your credit.
Get a copy of your credit report. Getting a copy of your credit report is a great way to figure out what things are directly affecting your credit score, and subsequently the cost of your insurance policy. Every consumer is entitled to one free credit report every 12 months, and each report includes:
- Accounts opened and their age
Recent hard inquiries
As with regular credit scores, credit-based insurance scores should never be impacted by factors that can be considered discriminatory. These include a person’s age, gender, race, religion, marital status, income/occupation, and location of residence. Also, there are a few states that have banned the practice of setting rates based on credit scores, including California, Massachusetts, Michigan, and Hawaii.
What is considered a good credit score can vary, depending on the insurance company. While the ranges can appear to be roughly the same, where they specifically start and end is determined by each company.
According to LexisNexis (which provides credit-based insurance scores on a range between 200 and 997), a good/excellent credit score would run from 776 to 997, an average/fair credit score would run from 626 to 775, a below average score would run from 501 to 625, and anything under 500 is considered undesirable.
Fortunately, car insurance companies also engage in soft pulls, not hard pulls, when conducting quote-related credit checks. There are, however, a whole other set of things that can affect auto insurance rates, such as one’s driving record.
Home insurance and homeownership can be expensive all on their own, so staying diligent in paying down debts, making payments on time, and generally showing financial reliability are the best ways to keep an excellent credit score and avoid adding to the cost of your homeowners insurance.
Even if you’re starting out with a less-than-ideal credit score, practicing healthy financial habits will help you cover credit-related expenses without breaking your budget. Over time, and with a solid measure of diligence, you can bring your credit score up and your insurance rates down.
It’s easy to find a low-cost homeowners insurance policy with Insurify. Get a list of home insurers that cover your neighborhood. Fill out the form and get personalized quotes, plus see what discounts are available. You can even complete your application online. Try it today!
Originally from Los Angeles, California, Adrian Coto is a writer living in Brooklyn, New York. A graduate of the NYU Creative Writing MFA program, he's worked as a legal assistant, a law school administrator, and now as a copywriter and editor.Learn More