It’s no secret that poor borrowing habits can come back to haunt you in the form of higher auto insurance rates. What many may not know, however, is that a low credit score has just as much of an impact on the price of a homeowners policy.
According to a new report from insuranceQuotes.com, the controversial rating factor can result in homeowners premiums of roughly 100% more for people with poor credit as opposed to people with excellent credit. Even those with median credit fall short, paying 32% more to insure their homes.
And this trend is only growing, says site analyst Laura Adams.
“In most states, insurers are putting more emphasis on credit scores this year. The impact of a poor credit score is higher now than it was last year in 29 states and Washington, D.C.,” said Adams, senior analyst from insuranceQuotes.com. “It’s more important than ever for people to maintain a solid credit rating by paying their bills on time, keeping their balances low and correcting errors on their credit reports.”
According to data, people with poor credit pay the most in the following four US states:
- West Virginia: A 202% increase for people with poor credit, versus people with excellent credit
- Washington, D.C.: A 185% increase
- Ohio: 185%
- Montana: 179%
Meanwhile, the greatest differences between excellent and median credit were observed in:
- Montana: A 66% increase
- Washington, D.C.: 61%
- Texas: 55%
In California, Massachusetts and Maryland, insurers are barred from considering homeowners’ credit scores when pricing policies. Insurers operating in Florida are allowed to use the rating factor, but analysis shows credit score does not materially impact premium pricing.
Using credit score as a basis for assessing risk has drawn criticism from consumer advocates, but insurance companies say there is a strong connection between credit scores and claims.
Speaking on auto insurance pricing models, James Lynch, an actuary with the Insurance Information Institute, said:
“Insurance companies don’t pull these variables out of the hat. They look very closely to see what variables will reflect their likelihood to have accidents and adjust rates accordingly.”
And while it may seem “cold and calculated” to charge a person already struggling more money for an insurance policy, Lynch said historical data demonstrates that loss and poor borrowing often go hand in hand.
