If you have a spotty or short credit history, you may be worried about whether or not you can get an affordable policy–or one at all.
Fortunately, you can get home insurance without a credit check.
While credit checks are common, they are by no means a requirement for all carriers. Read on to learn more about how credit history can influence home insurance rates and how you may be able to avoid the issue altogether.
Why do home insurance companies run credit checks?
Similar to other forms of insurance, homeowners insurance carriers determine your eligibility premium cost on your level of risk. One component of that risk calculation is creditworthiness.
Unlike lenders or credit card companies, home insurance carriers don’t use your credit history as the primary factor in determining eligibility. Insurance companies also consider your claims history, the location of your home, and any work you may have done to improve your home’s safety and quality.
However, credit history is very important for some home insurance providers.
While some consider credit checks to be a controversial practice, some research suggests that there is a correlation between an individual’s creditworthiness and their likelihood to file a claim. Insurance companies look for customers who are most likely to keep their costs down. Another concern that insurance companies have is a customer’s ability to pay their premiums on time. Individuals who don’t have a history of on-time payments are another risk.
It’s unlikely that an individual with a poor credit history will be outright denied an insurance policy, but they may pay significantly more than someone with excellent credit. According to a 2017 study conducted by Quadrant Information Services, homeowners with anything other than excellent credit pay 36 percent more for their premiums than those with “excellent” credit, as determined by the major credit bureaus.
What can I do if I have poor credit?
Ideally, you would take steps to improve your credit and financial standing, but that is a long-term project. It’s also not the most helpful advice if you are looking for a homeowner’s insurance policy right now. Here are a few short-term tips to get affordable home insurance when you have poor credit:
- Shop around – While many insurers factor credit history into their policy pricing decisions, they don’t all do it the same way. Give yourself enough time before a policy renewal or new home purchase to get as many quotes as possible so you can make an informed decision.
- Pay upfront – Many home insurance carriers offer discounts to customers who pay their entire annual premium upfront versus monthly or quarterly. While this doesn’t reduce the insurer’s risk of a customer filing a claim, it does eliminate the risk of late or missed payments.
- Request a reevaluation – Credit scores are not permanent, and insurance premium costs don’t have to be either. After a certain period (usually six months), you may be able to ask your insurer to re-price your policy based on an updated credit score.
How can I get around a credit check altogether?
Live in the right state
There are a few states (Massachusetts, Maryland, California, Hawaii) that either significantly limit or outright ban the use of credit scores in determining insurance eligibility. If you live in one of these states and encounter a carrier violating these rules, you can report them to your state’s insurance commissioner.
Work through an agent
If you are a resident of another state, you can avoid credit checks as well, albeit with a little more work. As noted earlier, not all insurance companies use credit history as a qualification factor. These are sometimes smaller and less well-known companies than national carriers. An independent agent can do the work of finding these carriers and getting your quotes. They may also be able to connect you with carriers more aligned with your needs and personal financial situation.
Tips for improving your credit
While you can get home insurance without a credit check, you are limiting your options. You may want to consider doing the work to improve your credit so you will have an easier time changing carriers or negotiating a lower rate in the future. An independent agent will also be able to help you more when you have more flexibility in your requirements.
Here’s what you can do to lower your rates in the future:
Pay bills on time
Having numerous accounts that are past due shows insurance companies that you are unable to pay on time. At the very least, pay the minimum amount due for all of your accounts every month.
Remove derogatory marks
Keep an eye on your credit reports and dispute any inaccurate information. Insurers partially base their decisions on comments from other creditors.
Keep credit card utilization low
Utilization is the outstanding balance divided by the total limit of your credit cards. High utilization suggests that an individual is risky and may be unable to pay bills on time.