When shopping for home insurance in the United States, most people consider location, home value, and past claims—but many overlook the critical role credit scores play in determining premiums. Your credit history can significantly influence the cost and coverage options of your policy. This guide breaks down why credit scores matter, how insurers use them, and steps you can take to reduce your insurance costs by improving your credit.
What Is a Credit Score and Why Do Insurers Use It?
A credit score is a three-digit number (typically ranging from 300 to 850) that reflects your financial behavior and reliability. It’s based on factors like payment history, credit utilization, account types, length of credit history, and recent activity.
Insurance providers use a variation called a Credit-Based Insurance Score (CBIS) to estimate your risk level as a policyholder. Research suggests individuals with lower scores are more likely to file claims, which leads insurers to charge higher premiums to offset potential losses.
How Your Credit Score Influences Home Insurance Premiums
- Higher Rates for Low Credit Scores
Homeowners with poor credit often pay significantly more for insurance. For instance, someone with a score under 600 might pay up to twice as much as a person with a score over 750. - Lower Premiums for Good Credit
If your credit score is strong, you may qualify for substantial discounts. Insurers reward lower-risk customers with better pricing and more flexible coverage. - Limited Coverage for Poor Credit
Some providers may restrict access to add-ons like flood or earthquake protection for homeowners with low credit, offering only basic coverage options.
How Is a Credit-Based Insurance Score (CBIS) Calculated?
Although each insurance company has its own formula, most CBIS models weigh similar factors:
- Payment history – 35%
- Credit utilization ratio – 30%
- Length of credit history – 15%
- Mix of credit types – 10%
- Recent credit inquiries – 10%
CBIS differs from a traditional credit score by focusing specifically on risk factors linked to insurance claims rather than lending behavior.
Legal Guidelines and State-Specific Rules
Some U.S. states restrict or prohibit the use of credit scores in determining insurance rates. For example:
- California, Massachusetts, and Maryland either limit or completely ban credit-based insurance pricing.
- The Fair Credit Reporting Act (FCRA) ensures you have the right to view and dispute errors in your credit report that may unfairly affect your premiums.
Always check with your state’s insurance department to understand local regulations.
Tips to Improve Your Credit Score and Lower Insurance Costs
Improving your credit score takes time, but even small steps can make a big difference:
- Pay bills on time – Timely payments build trust with lenders and insurers.
- Keep balances low – Try to use less than 30% of your available credit.
- Limit new credit applications – Too many inquiries can lower your score.
- Monitor your credit report – Look for errors or fraudulent activity and dispute inaccuracies.
- Maintain a healthy credit mix – A combination of installment loans and revolving credit can boost your score.
Beyond Insurance: The Broader Impact of Credit Scores
Your credit score doesn’t just affect home insurance—it influences mortgage rates, car loans, rental applications, and even job opportunities in some sectors. Strengthening your credit can lead to better financial outcomes across the board.
Conclusion
In the U.S., your credit score plays a crucial role in how much you pay for home insurance. Insurers use credit-based scoring to assess risk and adjust premiums accordingly. While some states regulate this practice, it’s still widely used across the country.
By taking proactive steps to improve your credit, you can unlock lower insurance rates, more comprehensive coverage options, and long-term financial benefits. Don’t overlook your credit health—it’s a powerful tool for saving money and protecting your home.