How Credit Score Effect on Home Insurance Premiums Varies by State

May 4, 2017

Credit scores have a big effect on home insurance premiums, more than doubling them for those with poor credit compared to those with excellent credit, according to analysis by online insurance seller

The insuranceQuotes study found that policyholders with fair credit pay an average of 36 percent more for home insurance than those with excellent credit. That’s up from a 32 percent increase in 2015 and 29 percent in 2014.

Those with poor credit rather than excellent credit could see their premium more than double, increasing an average of 114 percent.

“Many consumers aren’t even aware that, in most states, credit plays a significant role in determining how much they pay for home insurance,” said Laura Adams, senior insurance analyst, insuranceQuotes.

The study also indicates that credit score has been gaining in influence. A 2014 insuranceQuotes study found that those with a fair score were paying 29 percent more — on average — for home insurance than buyers with an excellent score. Today they pay 36 percent more on average. Those with a poor credit-based insurance score in 2014 were paying on average 91 percent more than those with an excellent score whereas today they pay on average 23 percent more.

The effect of credit varies greatly by state. A drop in credit from excellent to poor can mean paying as much as 288 percent more in South Dakota or only 0.2 percent more in North Carolina, according to the report. Three states (Massachusetts, California and Maryland) show no effect as they prohibit the use of credit in home insurance rate setting.

When credit drops from excellent to poor, these states see the greatest home insurance premium increases: These states show the smallest increase (excluding CA, MA and MD, where using credit in setting home insurance rates is prohibited):
1. South Dakota — 288.1% 1. North Carolina — 0.2%
2. Arizona — 268.6% 2. Florida — 25.7%
3. Oklahoma — 248.0% 3. New York — 29.3%
4. Nevada — 235.3% 4. Wyoming — 43.9%
5. Oregon — 234.9% 5. Hawaii — 53.1%

The following five states showed the greatest average premium increase for someone with fair credit as opposed to excellent credit:

  1. Arizona — 75 percent increase
  2. Oregon — 67 percent
  3. Montana — 67 percent
  4. Washington, D.C. — 65 percent
  5. Oklahoma — 59 percent

The report also notes that different insurance companies use credit-based insurance score data in different ways. As a result, an insured’s credit history may play a more significant role with one insurer in a state than it does with another.

“My advice to consumers is do everything you can to build and maintain excellent credit so you pay less for credit accounts and home and auto insurance,” said Adams. “To maintain good credit make payments on time, keep balances low, and avoid opening many new accounts.”

For its analysis, commissioned Quadrant Information Services to calculate home insurance rates using data from six major carriers with approximately 60 percent market share in each state. The averages are based on a 45-year-old who owns an 1,800 square foot, 2-story, single family home, built in 1976, with $140,000 dwelling coverage, $300,000 liability coverage and a $500 deductible. The three tiers of credit-based insurance scores analyzed were excellent, fair and poor.

Topics Homeowners

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Latest Comments

  • January 19, 2021 at 6:25 pm
    KUIA says:
    It was so much easier for us agents to explain premium increases before the use of credit. It depends on why the customer's credit score is low. I've noticed that many custo... read more
  • May 9, 2017 at 9:17 am
    PolarBeaRepeal says:
    Zip codes are a proxy for other factors, and are being replaced by models using those factors in lieu of zip. But the inertia in the pricing systems supported by some regulato... read more
  • May 9, 2017 at 9:13 am
    PolarBeaRepeal says:
    Slowly, GLMs and other actuarial pricing models are replacing credit score with more reliable, correlated variables that are encompassed in credit scores. In time, credit sco... read more

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