According to an InsuredCircle rate analysis, a person with good credit would pay an average of $1,784 per year for homeowners insurance. However, in most states, someone with bad credit would face an average annual premium of $3,142, which is more than 76% higher.

Each insurer defines "good" and "poor" credit differently, but they generally correspond to traditional credit score ranges. A good credit score is typically between 690 and 719, while anything less than 630 is considered a bad score.

In California, Maryland, and Massachusetts, using credit to set homeowners, renters, condo, and mobile home insurance prices is prohibited.

How credit affects home insurance rates

Insurance companies have used credit-based insurance scores to help determine how risky a person is to insure since the 1990s. Companies can use these scores to determine your rates or whether or not to sell you a policy at all.

A credit-based insurance score is comparable to a traditional credit score, but it is weighted differently. Both scores consider factors such as how much debt you have and whether you have made on-time payments.

Unlike your mortgage lender or credit card company, insurers rarely use your credit history to determine your ability to pay your premiums. Instead, they're attempting to forecast your likelihood of filing a claim. According to studies, those with lower credit-based insurance scores are responsible for a greater share of claim payouts.

A higher likelihood of filing a claim implies a higher risk for the insurance company — and a higher rate for you.

Is it fair to use credit history to set home insurance rates?

Some consumer advocacy groups have spoken out against using credit to set insurance rates. They claim that the practice unfairly affects people of color, who frequently have lower credit scores than white people as a group.

The COVID-19 pandemic has widened the racial divide. According to a study conducted by Harvard University's Joint Center for Housing Studies, minority households were more likely to lose employment income and struggle to make mortgage payments during the pandemic.

To mitigate the financial impact of the pandemic, some state insurance commissioners took steps to reduce the role of credit in determining insurance pricing. In Nevada, for example, an insurer cannot raise your premium or deny you coverage based on changes in your credit score after March 1, 2020.

The insurance commissioner in Washington attempted to impose a three-year moratorium on using credit information to set rates for auto, homeowners, or renters insurance. However, a judge later overturned the ban.

The most affordable companies for homeowners with poor credit

Because each insurance company uses its own complex formula to determine homeowners insurance rates, people with bad credit may pay less with some companies than others. The average annual rates for homeowners with bad credit from a few major insurers are listed below.

How to pay less for homeowners insurance

Look around. Checking rates from multiple companies is the best way to find more affordable insurance. You can compare homeowners insurance quotes online or hire an independent agent to do the legwork for you. To ensure a fair comparison, double-check that each quote has comparable coverage amounts and deductibles.

Improve your credit score. Improving your credit can save you hundreds of dollars per year on homeowners insurance in the long run. It can help to pay your bills on time and use less of your available credit. Learn more about credit restoration.

Inquire about discounts. Check with your insurer or agent to ensure you're receiving all of the available home insurance discounts. Many carriers provide discounts if you combine multiple policies (such as homeowners and auto) or have security devices such as burglar alarms or smoke detectors.