Can poor credit raise your renters insurance rates? The amount you pay for renters insurance depends on how much coverage you choose, your location, and whether you have filed for claims previously.
However, in most cases, your poor credit could raise your renters insurance rates. In fact, it can make a huge difference.
According to our research, the renters insurance rates for policyholders with poor credit are 80% higher than those with good credit in locations where credit is a factor for rating.
(What’s referred to as a good or poor credit score depends on the insurance company, but these credit scores are typically matched with the FICO credit ranges.)
Using credit scores to set renters rates or other types of home policies is currently permitted in most states in the USA apart from California, Washington, Maryland, or Massachusetts.
Understanding How Poor Credit Affects Your Renters Insurance Rates
For many years now, insurance companies have used credit-based insurance scores to set rates and check the people they wish to sell policies to.
Your insurance score is quite similar to the credit score banks check for during your application for a loan or credit card. Both scores have the same factors, like unpaid debt and your payment history.
However, you need to know that they are weighted a bit differently. In literal terms, if you have a very poor credit score, your insurance score may be very low too.
You may think the way you spend or manage your finances has nothing to do with how likely you are to file an insurance claim. But according to studies, there is a correlation.
Those with poor credit-based insurance scores are more likely to file for more claims than people with very high scores. Due to this, people with poor credit often end up paying much more for policies.
Insurers want to predict accurately the chance of a claim so that everyone pays premiums fairly and accurately. If an individual is more likely to file a claim, then he or she should be able to pay more for insurance.
Are Credit-Based Insurance Scores Fair?
Even if insurance scores do predict accurately whether an individual will file a claim. Using it as a factor for rating has become controversial in the country.
That’s mostly because of the effect the practice has on people with lower incomes and minority populations. According to Bob Hunter, a former director of insurance at the Consumer Federation of America, “People with poor credit pay a lot more, and this makes it quite difficult for poor people to want coverage.”
How To Find Cheaper Renters Insurance With Poor Credit
Even if you have poor credit, you don’t have to skip or go for very expensive renters insurance. The below tips can help you cut out costs:
Check Your Credit Report
If your rates go up, contact your insurer to explain why. According to the Fair Credit Reporting Act, the insurance company must let you know if your credit data contributed to the expensive rate.
If this happens, we advise that you look at your credit report and settle errors that you find.
Shop Around
Every insurance company has its own pricing formula. So, it is advisable that you get quotes from multiple companies to ensure you receive the best deal.
We also recommend that you work with an independent insurance agent or broker who can help you shop for policies on your behalf.
Look Out For Discounts
You can be able to save more money by bundling your car and renters insurance policies with the same insurer. Or by informing your insurance company if your home has safety devices.
Other discounts may be available for signing up for autopay or paying for the policy in full upfront.
Raise Your Deductible
A deductible is the sum of money that is legally removed from your insurance reimbursement any time you file a claim. Choosing a very high deductible can help you in reducing your premium.
Though this option may not be worth it if you have issues in covering your deductible in case of a claim.
Improve Your Credit
Paying your bills regularly and reducing your debt can help you in building your credit over time. And may eventually make you eligible for lower insurance rates.
For example, you can try to report your rent payments to any of the three credit bureaus.
