Does your credit score affect your renters insurance rates?

In America, credit is king. That means your credit score can impact everything from being approved for a loan to your ability to rent an apartment.

Renters insurance protects your personal property in a rented home from unforeseen circumstances such as theft and fire. Suppose you encounter an unfortunate incident in the home you’re renting but have a renters insurance policy. In that case, you’re covered from any lost or damaged possessions, and you may also be protected from liability if someone is injured on your property.

But did you know that your credit history can also affect your renters insurance rates? 

Hearing that can hit hard, especially if you have a less-than-stellar credit score.

But no need to panic — there are still plenty of affordable options.

How credit affects renters insurance

If you have poor credit, it could adversely affect your renters insurance rates. This is because your credit score is often one of several factors that insurers use to decide how much to charge you for a policy.

That said, your credit score is never the sole factor that determines your insurance rates.

Other major factors include:

• Where you live.
• The value of your personal possessions.
• What type of property you live in.
• Whether or not you have pets.
• The frequency of natural disasters, like hurricanes and wildfires, in your area.
• How much coverage you need.

In some cases, insurance companies also offer customers discounts based on good credit history.

Whether these practices will hurt or help your wallet depends on your credit score and which insurance company you choose.

Why do insurers use credit to determine rates?

Insurance companies take your credit score into account because your score may indicate how likely you are to file a claim.

Because customers with poor credit are statistically more likely to file a claim with their renters insurance company, these companies charge customers with low scores more up-front.

While using credit as a factor when determining insurance rates is legal and common practice in many areas of the country, it’s also controversial. Insurance companies often charge much higher rates to the very people who are least able to afford them.

Since credit scores are often correlated with income level, low-income customers usually pay higher rates.

There is some light at the end of the tunnel, though, since renters insurance is one of the most affordable insurance options you’ll find.

Which states allow insurers to use credit scores?

Not all states allow insurance companies to use your credit score to determine your insurance rates.

For example, the following states have laws in place to limit the extent to which insurers can base your rates on your credit:

• California.
• Hawaii.
• Maryland.
• Massachusetts.
• Michigan.
• Oregon.
• Utah.

If you have poor credit and live in a state that allows insurance companies to take credit scores into account, you still have options.

Some insurance companies don’t consider credit scores when determining your rates, and not all insurance companies give your credit score the same weight.

Will applying for renters insurance impact your credit score?

While many insurers do check your credit when reviewing your application for an insurance policy, the good news is that the act of applying for insurance doesn’t hurt your score.

Insurance companies do not trigger a hard inquiry on your credit report; they only trigger a soft pull, which doesn’t affect your credit score.

Should I still purchase renters insurance if I have poor credit?

Even if you have poor credit, you should still consider purchasing renters insurance. This is because renters insurance can save you a lot of money if anything happens to your personal possessions.

Most renters insurance will cover circumstances like:

• Damage to your belongings if something happens to them.
• If a theft occurs in your apartment.
• If the house you rent burns down in a fire.
• If a guest is injured in your rented unit.
• Property is damaged by a visitor.

Some policies also cover the cost of living expenses if your apartment becomes uninhabitable and you need to relocate to another space, but you will have to check your policy.

Does the cost of renters insurance outweigh the benefits for those with poor credit?

It’s good to know that renters insurance doesn’t have to be extremely expensive, even if your credit isn’t where you want it to be.

In many cases, it will only cost you a few dollars a month, which means it will more than pay for itself in the event that your property is damaged or stolen.

For those with poor credit, which should be focused on paying off debt and spending less, renters insurance is still absolutely worth it. 

How to find good renters insurance with poor credit

Here are some strategies for finding the best renters insurance, regardless of your credit score.

Determine how much coverage you need

When you purchase a renters insurance policy, you’ll need to decide what coverage limits to choose. While most companies have a set minimum of around $20,000 to $30,000, you may need to purchase additional coverage if you have valuable possessions like expensive jewelry or technology.

Shop around for the best rates

Not all insurance companies consider your score when determining your rates, and the insurance companies that do include credit as a factor may weigh it differently.

This is why it’s essential to shop around through sites like Policygenius, where you can compare rates from different insurance companies in one place.

Look for discounts

Some insurance companies offer policy discounts to their customers. These can include discounts for bundling renters insurance with auto insurance, discounts for paperless statements, and discounts for paying your policy upfront.

Factor it into your budget

If you’ve never purchased renters insurance before, you might not know how much it costs. Luckily, renters insurance policies are often incredibly affordable and can easily be added to your monthly budget without breaking the bank.

For example, renters insurance rates from Lemonade start at just $5 per month, and you can get covered in as little as 90 seconds. For the cost of a cup of coffee, you can make sure that your possessions are protected in the case of an accident, theft, or natural disaster.

Summary

Unfortunately, a poor credit score can negatively influence your renters insurance rates. But not all insurance companies use credit information to determine prices, so getting quotes from multiple providers can give you a better sense of how much you’ll have to pay.

Read more:

• Does renters insurance cover flood damage (and other natural disasters)?
• When should you actually make a homeowners or renters insurance claim?