How Your Credit Affects Your Home Insurance Rate
What You’ll Learn
- What a credit-based insurance score is and how it differs from a credit score
- Which kinds of credit information these scores typically look at
- How home insurers may use credit, and how state rules limit it
- What extraordinary life circumstances rules are and how to ask about them
- Your federal adverse action notice rights and how to check and dispute your credit reports
A credit-based insurance score is one of the factors many home insurers may use, where state law allows, when deciding whether to offer a policy and what to charge. It's built from information in your credit report, but it isn't the same as the credit score a lender looks at when you apply for a mortgage.
This article explains what these scores are, what they typically look at, how state rules differ, and what rights you have if credit plays a part in your coverage or price. Practices vary by insurer and state, and no article can tell you how a specific company will rate your home.
What Is a Credit-Based Insurance Score?
According to the National Association of Insurance Commissioners (NAIC), a credit-based insurance score is based partly or entirely on your credit history. Insurers use it to help estimate the likelihood of a future insurance claim.
A traditional credit score is designed for a different job: predicting whether you'll repay a loan. The two draw on similar information, but the NAIC notes that they may weigh credit factors differently. That's why the NAIC's consumer guidance puts it plainly: a credit-based insurance score isn't the same as a credit score.
Credit-based insurance score vs. credit score
- What it predicts: an insurance score helps estimate claim likelihood; a credit score helps estimate loan repayment.
- Who uses it: insurers, where allowed, versus lenders and other creditors.
- How it's weighed: each is one input. Insurers also look at the home and its claims history, and lenders look at income, debts and the loan itself.
For how lenders use credit, see how your credit affects your mortgage options.
What a Credit-Based Insurance Score Typically Looks At
Scoring models vary, but the NAIC lists these broad categories of credit information that commonly feed into a credit-based insurance score:
- Payment history: whether bills have been paid on time
- Outstanding debt: how much you currently owe
- Length of credit history: how long your accounts have been open
- Pursuit of new credit: recent applications for new accounts
- Credit mix: the types of credit you use
The NAIC also lists information these scores can't use, including race, color, national origin, religion, gender, marital status, age, income, occupation and where you live. That limit applies to the score itself. Insurers consider some other factors, such as the home's location, separately when pricing a policy.
How Home Insurers May Use Credit
Credit is one input among several. The NAIC notes that insurers also consider factors such as claims history, property characteristics, location, coverage limits and deductibles. Your claims history report is a separate record that can also play a role.
Where state law allows, an insurer may use a credit-based insurance score to:
- Help decide whether to offer a policy
- Place you in a pricing tier, which can affect the premium
- Review the account again later, which in some cases can affect a renewal premium
Not every insurer weighs credit the same way, and some states limit how it can be used. The NAIC suggests asking an insurer whether a credit-based insurance score was used in your quote and which risk category you were placed in. A licensed insurance agent can also explain the factors behind a quote. If your renewal premium went up and you're trying to understand why, see why your insurance renewal premium jumped.
State Rules on Credit-Based Insurance Scores Vary
Insurance is regulated by the states, and rules on credit differ. The NAIC notes that some states impose added restrictions or prohibit certain uses altogether. A few examples from state sources and the NAIC's state-by-state chart of credit laws:
- Maryland: state law says insurers may not use credit history to rate or refuse to underwrite homeowners coverage. The Maryland Insurance Administration says insurers can't use your credit history to refuse coverage, cancel your policy or determine your premium.
- Michigan: according to the NAIC chart, credit information can't be part of a decision to deny, cancel or not renew a policy, though it may be used for premiums if the consumer is told at application.
Other states allow credit-based insurance scores with consumer protections, such as notice requirements or limits on what can be counted. Rules can change, so check with your state's department of insurance or review the NAIC chart of state credit laws for where you live.
Extraordinary Life Circumstances
Sometimes credit takes a hit for reasons that have nothing to do with how you care for your home, such as a serious illness, a job loss or a catastrophic event. Some states require insurers to provide reasonable exceptions when a consumer's credit information has been directly affected by events like these. The NAIC chart lists provisions of this kind in a number of states, including Illinois, Minnesota, New Jersey and Texas. The details, such as which events qualify and what documentation is needed, vary by state.
Even where a state rule doesn't require it, the NAIC notes that many insurers will reconsider a premium change after a catastrophic event, job loss or serious illness. If this applies to you, ask the insurer in writing whether an exception is available and what it needs from you.
If a hardship hurt your credit, ask the insurer whether an exception is available. Some states require one.
Your Rights if Credit Affects Your Coverage or Price
The federal Fair Credit Reporting Act gives you rights when information from a consumer report is used against you. According to the Federal Trade Commission's guidance for insurers, an adverse action includes situations where insurance is denied, rates are increased, a policy is terminated, or there's another unfavorable change in the terms of existing coverage. The FTC says a notice is required even if the report played only a small part in the decision.
That adverse action notice must include:
- The name, address and phone number of the consumer reporting company that supplied the report
- A statement that the reporting company didn't make the decision and can't explain the specific reasons for it
- Your right to a free copy of your report from that company if you ask within 60 days
- Your right to dispute the accuracy or completeness of the information in your report
Many states add their own notice requirements on top of federal law. If you get a notice, keep it and use it as a starting point for checking your report.
How to Check Your Credit Reports
According to the FTC, you can get free credit reports from each of the three nationwide credit bureaus once a week at AnnualCreditReport.com. You can also order by phone at 1-877-322-8228. The FTC notes that credit reports and credit scores are different things, and it warns about look-alike sites that advertise free scores.
When you review your reports, look for accounts you don't recognize, late payments you believe are wrong, balances that look off, and old information that should have aged off. If you find a mistake, the FTC explains how to dispute errors with both the credit bureau and the business that reported the information. Both must correct inaccurate or incomplete information, and the dispute is free.
What You Can Do
- Check your credit reports. Review all three and dispute errors you find.
- Keep up with payments. The NAIC suggests paying on time, catching up quickly if you fall behind, and keeping credit card balances low. Changes in credit history take time to show up, and there's no assurance that any change will affect a premium.
- Ask questions. Ask the insurer or a licensed insurance agent whether a credit-based insurance score was used and which tier you were placed in.
- Ask about exceptions. If a hardship affected your credit, ask whether an extraordinary life circumstances exception applies in your state.
- Compare quotes. Insurers weigh credit and other factors differently, so quotes can vary. Some households also look at whether bundling home and auto insurance fits their situation.
- Contact your state regulator. Your state's department of insurance can answer questions about local rules and take complaints.
Frequently Asked Questions
Is a credit-based insurance score the same as my credit score?
No. Both use information from your credit report, but a credit-based insurance score helps estimate the likelihood of an insurance claim, while a credit score helps estimate loan repayment. They may weigh factors differently.
Can a home insurer use my credit in every state?
No. Rules vary by state. Some states allow credit-based insurance scores with consumer protections, and a few, such as Maryland for homeowners insurance, prohibit certain uses. Check with your state's department of insurance.
Can credit affect my premium at renewal?
In states that allow it, it may. If information from a consumer report contributes to a rate increase or another unfavorable change, federal law generally requires an adverse action notice.
Will improving my credit lower my home insurance premium?
Not necessarily. Credit is only one factor, and premiums also depend on the home, its location, claims history, coverage choices and the insurer's own pricing. Ask a licensed insurance agent how your policy is rated.
How do I find out whether credit was used in my quote?
Ask the insurer. The NAIC suggests asking whether a credit-based insurance score was used and which risk category you were placed in. If credit contributed to an adverse decision, you should receive a notice.
The Bottom Line
A credit-based insurance score isn't your credit score, but it can be one of the factors behind your home insurance quote in states that allow it. Know your state's rules, check your credit reports for errors, ask how a quote was built, and use your federal notice and dispute rights if credit plays a part in a worse result.
This article is general information, not insurance, legal or credit advice. Insurance underwriting and pricing vary by policy, carrier and state, and state rules on the use of credit can change. Talk with a licensed insurance agent or your state's department of insurance about your situation. Advice4Homeownership is a publisher, not an insurance company or agency.
