Renters insurance is a crucial safeguard for protecting your belongings and liability as a renter, but many don’t realize how much their credit history can impact what they pay. Understanding the connection between your credit and your renters insurance rate can help you make smarter financial decisions and potentially lower your premiums.
Insurance companies use a specialized credit-based insurance score not the same as your typical credit score to help determine the risk you pose as a policyholder. Studies have shown that individuals with lower credit scores tend to file more claims or more costly claims than those with better credit, so insurers factor this into pricing.
The average cost of renters insurance is $23 per month, nationwide. On average, renters insurance rates for people with poor credit are about 66% higher than those with good credit in most states where credit is used as a rating factor. This difference arises because insurers want premiums to reflect the risk of filing claims, so a lower credit score typically means a higher renters' insurance rate.
A credit-based insurance score is derived from similar data as your consumer credit score but is weighted differently to predict insurance risk. Factors include payment history, credit utilization, length of credit history, and public records of defaults or collections.
Unlike the standard FICO score, this insurance score is proprietary to insurers and not accessible for consumers to view. However, if you maintain a good credit score, you likely have a favorable insurance score as well.
Although it may feel indirect, credit history gives insurers insight into your financial responsibility and likelihood of submitting claims. Data-backed patterns indicate that individuals with poor credit tend to file more claims on average, which increases costs for insurers.
This means that your renters insurance rate is partly a reflection of your financial behavior, not just your property or location.
While credit-based insurance scores affect renters insurance rates in most states, some states such as California, Maryland, and Massachusetts prohibit or restrict their use in setting insurance premiums. In these states, your credit should have little or no impact on your renters insurance rate. You can check your state's regulations by visiting government insurance departments such as your state’s Department of Insurance website.
Since your credit has such an important influence, improving your credit can reduce your renters insurance premiums over time. Here are steps you can take:
Pay bills on time: Your payment history is the largest factor in credit scores.
Reduce debts owed: Lower credit card balances and avoid maxing out your cards.
Limit new credit applications: Each hard inquiry can lower your score temporarily.
Check your credit report: Correct any errors or fraudulent accounts that might drag down your score.
Additionally, you can shop around with different insurers as companies weigh credit scores differently in their rating models. Bundling renters insurance with other policies like auto insurance can also secure discounts.
If you’re worried about how your credit is affecting your renters insurance premiums, don’t navigate it alone. At Spotlight Insurance Agency, we focus on delivering personalized service and tailor insurance solutions designed to fit your unique financial and personal situation.
Contact us today for a comprehensive policy review. Our experts will help identify opportunities to optimize your coverage and potentially lower your renters' insurance rate while protecting what matters most.
Not always, but in most states where credit is used as a rating factor, poor credit typically results in higher rates.
No. Insurers use a soft inquiry to check credit, which does not affect your credit score.
Yes. Better credit generally leads to a better credit-based insurance score and lower premiums.
Yes, some states like California, Maryland, and Massachusetts restrict or prohibit the use of credit scores in insurance pricing.
