:max_bytes(150000):strip_icc()/nber-BorisJovanovic-269397eba7a746ddb714160937d800de.jpg "A Surprising Way Your Credit Score Could Be Costing You More")
:max_bytes(150000):strip_icc():format(jpeg)/nber-BorisJovanovic-269397eba7a746ddb714160937d800de.jpg)
Key Takeaways
- Homeowners with very low credit scores paid about $550 more per year for home insurance in 2024 than those with very high scores.
- Insurance costs have risen faster for low-credit homeowners, with their insurance burden growing 1.7 percentage points per year since 2020.
- Improving your credit score—or shopping around if your score improves—may help lower what you pay for home insurance.
Many people are aware that your credit score impacts your ability to get a credit card, mortgage, or a loan. But do you know it may also affect what you pay for homeowners insurance?
Insurers often rely on a credit-based insurance score derived from your credit report to help predict risk, and new research shows how much of an impact it can have on your premium.
Homeowners With Lower Credit Scores Pay 24% More for the Same Coverage
Your credit score may shape more of your housing costs than you realize. New research from the National Bureau of Economic Research found that U.S. homeowners with the lowest credit scores paid about $550 more per year for home insurance than those with the highest scores for identical coverage in 2024.
That average difference of $550 equates to about 24% higher premiums for homeowners with the lowest credit scores compared with those in the highest credit tier.
“Even after accounting for location and disaster risk, the credit-premium gradient remains unchanged, suggesting that lower-credit borrowers pay more for reasons other than physical risk exposure,” the paper’s authors wrote.
In other words, the higher premiums can’t be explained simply by where people live or how exposed their homes are to disasters. Even when those factors are held constant, homeowners with lower credit scores tend to pay more.
Why This Matters
Credit scores can affect more than your borrowing costs—they may also influence what you pay for homeowners insurance. Improving your score and shopping around could help lower those premiums.
Insurance Costs Are Climbing Faster for Homeowners With Lower Credit
For the average U.S. homeowner, what’s known as the insurance burden—the share of monthly mortgage payments going toward home insurance—has increased over time. But homeowners with low credit scores have seen a much larger jump.
Insurance burdens were relatively flat between 2015 and 2019, though homeowners with very low credit consistently had a higher insurance burden than those with stronger credit. That began to change in 2020, when the burden started rising for everyone—but faster for those with low credit scores.
Since 2020, the average insurance burden for homeowners with very low credit has increased by about 1.7 percentage points per year, the paper’s authors found.
| Impact of Credit Score on Insurance Burden | ||
|---|---|---|
| Group | Insurance Burden in 2020 | Insurance Burden in 2024 |
| All homeowners | 12% | 15% |
| Homeowner with low credit scores | 17% | 24% |
Where Credit Scores Aren’t Used
California, Massachusetts, and Maryland prohibit insurers from using credit information when setting homeowners insurance premiums.
What You Can Do If Your Credit Is Raising Your Insurance Costs
If your credit score is on the lower end—generally under 670 on common scoring models such as FICO or VantageScore—and your insurance premiums are higher as a result, there are steps you can take that may help reduce what you pay.
Work on Raising Your Credit Score
Since borrowers with credit scores in the mid- to high 700s or higher tend to get the best rates, here are some things you can do to boost your score.
- Pay your bills on time. This will help you establish a history on on-time payments.
- Don’t use too much credit. Keep a low credit utilization ratio, which is the percentage of your available credit that’s in use.
- Don’t apply for too many accounts. Opening or applying for several accounts within a short time frame could signal to lenders that you’re in financial trouble.
- Check your credit reports. Staying on top of what’s on your reports will help you spot any errors, which you can dispute.
Shop Around if Your Score Has Improved
If your credit score has improved, your current insurer may be willing to offer a lower rate. But if not—or if the difference is minimal—shopping around could help you find a better price. Insurance is a competitive industry, and comparison shopping online can make it easier to see whether another insurer offers the same coverage for less.
Over time, improving your credit score could help lower your insurance premiums and reduce overall housing costs.
Don’t Assume Bundling Is Cheaper
If you have more than one type of insurance policy—such as home and auto—bundling them with one insurer may save you money, but not always. Shop around and keep an open mind about using different carriers for different policies.
