Could Poor Credit Raise Your Renters Insurance Rates?

The cost of renters insurance will vary depending on where you live, what coverage you choose, and whether or not you have ever filed any claims. Your credit history can have a significant impact on your rate in many states.

NerdWallet’s recent analysis found that renters insurance rates in states with credit rating factors are 83% higher for those with poor credit than for those with good credit. Although the definition of a good or poor credit score can vary by insurer, these scores generally match FICO credit score ranges.

California, Maryland and Massachusetts do not allow the use of credit to determine renter’s prices or any other type of home insurance.

How credit impacts renters’ insurance rates

Insurers have used credit-based, insurance scores since the 1990s to set rates and decide who they are willing to insure.

Your insurance score is comparable to the credit score banks use when you apply for a loan or credit card. Although both scores include the same factors such as payment history, outstanding debt, and they are weighted slightly differently, they do contain similar elements. Your insurance score will likely be lower if you have poor credit.

Although you might not believe that your financial management has any bearing on how likely you will file an insurance claim or file one, studies show that it does. Those with lower credit scores are more likely than those with higher ones to file claims.

What is the result? The result?

Christine Barlow is a chartered property casualty insurance underwriter and managing editor of FC&S Expert Coverage Interpretation. She says that if someone is more likely than others to file a claim they should be paying more insurance.

Are credit-based insurance scores fair

Even though your insurance score can accurately predict whether you will file a claim or not, it has been controversial to use it as a pricing indicator. This is partly due to the unfavorable effect it has on low-income and minority communities.

Bob Hunter, Director of Insurance at the Consumer Federation of America, says that people with poor credit pay more. “Because the demographics of the country, it means that it’s also more difficult for [many] persons of color.”

These hardships have been made worse by the COVID-19 pandemic, which has seen black and Hispanic workers experiencing higher unemployment rates than white workers.

“Using credit score to pay premiums only increases [income] disparity,” Naem Siddiqi (a senior advisor at SAS and credit risk expert), said in an email.

To avoid penalizing people who have had financial difficulties during the pandemic, some states have temporarily halted the practice. Nevada had made it illegal for insurance companies to deny coverage or raise premiums due to credit score changes after March 1, 2020. Washington’s insurance commissioner has recently imposed a three year moratorium on the use of credit information to price renters, auto, and home insurance.

How to get renters insurance at a lower price

People with poor credit do not have to pay sky-high renters’ insurance rates or accept a low credit score. These tips will help you reduce your costs.

Examine your credit reports. Siddiqi stated that if your premium rises, you should ask the insurance company why. You must be informed if credit data has contributed to “adverse actions”, such as a higher rate, under the Fair Credit Reporting Act. If this occurs, you should immediately review your credit reports and correct any errors.

Compare all options. You should shop around. Each insurance company has its own pricing structure. It’s worth getting quotes at least three companies to ensure you get the best deal. Barlow suggests that you work with an independent agent to shop around for insurance.

Consider looking for discounts. According to Alan Umaly, president and CEO of Westwood Insurance Agency, you could save money by bundling renters and auto insurance policies with one company. You may also be eligible for discounts if you pay in full upfront, or sign up for autopay.

Increase your deductible. Your deductible is the amount you subtract from your insurance payout in the event that you file a claim. A higher deductible can lower your premium, but it may not be worthwhile if it means you have to pay the deductible in case of a claim.

Credit repair is a good idea. Paying your bills on time, and reducing your debt can help you build credit and eventually qualify for lower insurance rates.