Aug 30, 2025
The costs of homeownership can add up quickly. Beyond the mortgage payments, homeowners face additional costs, like property taxes and home insurance, which can easily put pressure on household budgets.
Since mortgage lenders tend to require homeowners insurance, it’s an unavoidable cost, unless the home is completely paid off. But for homeowners with bad credit, the cost of insurance can feel especially burdensome.
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A recent report from the Consumer Federation of America (CFA) found that the typical homeowner with a low credit score is paying 99% more each year for coverage. While elevated costs vary from state to state, many homeowners with low credit feel the pinch of these higher rates.
If you are facing high home insurance premiums, understanding how your credit score impacts your rates could help explain your costs.
How bad credit impacts your insurance premiums
When determining your premiums, insurance companies take a wide range of factors into account. Some take your home’s age and condition into account. But other variables can include things like risk of flooding, proximity to a fire department and your credit score.
While many factors are included, your credit score can have a significant impact on your costs. The typical homeowner with a low score (defined as 630 or lower) pays $1,996 more per year for coverage.
The CFA report also found that homeowners with low credit scores often face higher rates than those who live in a high disaster risk area. That could mean living with a bad credit score could push their rates higher than even those living in a hurricane-prone or wildfire-prone area.
It’s clear that this practice could significantly hurt homeowners on a budget. The report also notes that this practice “disproportionately harms Black, Hispanic, and Native American homeowners, who tend to have lower credit scores due to the longstanding racial wealth gap and other persistent structural barriers.”
But homeowners in some states face significantly higher credit penalties than others. Those in Pennsylvania, Arizona, Oregon and West Virginia were found to face the highest penalties for bad credit. But other states, like California, Maryland and Massachusetts, have banned the practice of using credit scores when determining insurance premiums.
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How homeowners can tame their premiums
It’s clear that a higher credit score can lead to significant savings for homeowners. With that, putting some effort into increasing your credit score over time can pay off.
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Some potential ways to increase your credit score include sticking to on-time debt payments and avoiding new credit applications. Additionally, checking your credit report for errors and removing them could help you grow your score.
But it’s worth noting that increasing your credit score can take time, which means you likely won’t see any immediate relief to your homeowners insurance payments.
While working on your credit is a long-term play, there are some other ways you could potentially find a lower homeowners insurance rate. The first option is to shop around. Different insurance companies assess your situation differently, which can lead to surprisingly different rates, according to the Insurance Information Institute.
Another option is to raise your deductible. Generally, insurers offer lower rates to homeowners who opt for higher deductibles. But it’s important to have enough money on hand to cover the higher deductible in the event of an emergency because you’ll be required to pay it during a claim.
Other ways to find lower rates include beefing up your home security and bundling your home’s coverage with other policies, like auto insurance.
If you want your state to implement laws that prevent insurers from using credit scores, consider contacting your local representatives. Showing interest in this issue could push them to take up the cause in your state’s legislature.
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Sarah Sharkey is a personal finance writer who enjoys helping people make optimal financial decisions for their situation. She loves digging into the nitty-gritty details of financial products and money management strategies to root out the good, the bad, and the ugly. Her goal is to help readers find the best course of action for their needs.
