MW You could be paying an extra $2,000 for home insurance every year because of this financial baggage. Here's how to fix it.

By Genna Contino

Insurers use this little-known factor to decide how big your premiums will be

Americans struggling with affordability may not be aware of this hidden factor affecting their home- and car-insurance premiums.

Your credit score follows you everywhere. Whether you're applying for a loan, a credit card, an apartment or even a job, it's often the first measure of your financial reliability.

And you may not realize that insurers are looking at your credit score, too - and that a low one could nearly double your home-insurance premium.

Having a credit score of roughly 630 or lower can add nearly $2,000 a year to the cost of homeowners insurance over what someone with a higher score would pay, according to an August report from the Consumer Federation of America. That's about $166 in extra monthly costs just for having a low credit score. A 630 credit score is generally considered to be a "fair" score, which is better than "poor" but worse than "good."

As insurance costs climb nationwide, credit scores are also a major factor influencing how much drivers pay for car insurance. Many insurers use credit information to determine the price of both home and auto coverage - meaning a lower score can inflate these bills, which are some of the largest in a household budget. A recent YouGov-MarketWatch survey found that insurance costs ranked among the most pressing affordability concerns for Americans.

The consequences of higher insurance costs can be dire. The cost of homeowners insurance has ballooned so much that people in some areas can't afford to pay their mortgages. Those costs could grow another 16% over the next two years, Realtor.com reported, citing data from Cotality. Meanwhile, soaring car-insurance costs have led some drivers to skip coverage altogether. At a time when many Americans say affordability is a major challenge, improving your credit could help reduce some of those costs.

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"A lot will vary depending on your specific circumstances and how much you can improve your credit score," said Michael DeLong, a research and advocacy associate at the Consumer Federation of America. "But even getting your credit score from low to just medium will result in you paying significantly lower premiums."

How credit scores are priced into insurance premiums

Insurers use account and payment information contained within a credit report to assess how financially responsible someone is. This information is then used to calculate a "credit-based insurance score," according to TransUnion. That is essentially a prediction of the likelihood that a policyholder will have an insurance loss or file a claim.

"Risk-based pricing ensures low-risk policyholders don't subsidize high-risk policyholders," said Mark Friedlander, senior director of media relations for the Insurance Information Institute, a nonprofit supported by the property and casualty industry. "It is an actuarially sound approach to rate risk and is one of many factors insurers use to price a policy."

This insurance score is considered along with factors such as a policyholder's age, ZIP code, property value, claims history and driving record when insurers set premiums for home and auto insurance.

While policyholders with low credit scores are penalized the most, those with average scores of around 740 still pay about 39% more in home-insurance premiums - or an extra $792 per year - than people with high scores of around 820, according to the Consumer Federation of America report.

"A credit score is a powerful first impression of your finances," said Lora Monfared, head of consumer credit-card products at Bank of America (BAC). "A strong score can unlock favorable loan terms, lower insurance premiums and better approval for financial commitments."

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Each state has its own insurance regulator, so credit-based premium fluctuations vary depending on location. California, Maryland and Massachusetts have banned insurers from using credit scores when setting home-insurance premiums. But policyholders with low credit scores in Pennsylvania and Arizona can expect to pay 181% and 168% more, respectively, than those with high credit scores.

Health-insurance premiums are typically not influenced by credit scores in the way home and auto premiums are. The Affordable Care Act mandates that insurers can only consider age, location, tobacco use, type of enrollment and plan category when setting prices.

Tips for fixing your credit score

Credit scores influence far more than loans - and improving yours could reduce some of the largest costs of homeownership.

To raise your score, certified financial planner Crystal Cox recommends identifying and addressing any negative information on your credit report - such as collection accounts, late payments or bankruptcies. Consumers can obtain their credit reports from the three major reporting agencies - Equifax $(EFX)$, Transunion (TRU) and Experian (UK:EXPN) - for free as often as once a week at AnnualCreditReport.com. Armed with that information, they can then dispute inaccurate items with the credit bureaus and contact creditors to set up payment plans or settlement agreements for outstanding debts.

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"Derogatory marks are the single biggest credit-score killer," said Cox, who is a senior vice president at Wealthspire Advisors in Madison, Wis.

From there, building consistent habits can gradually lift a score. That means making every payment on time, keeping credit-card balances well below their limits and avoiding unnecessary new credit applications, Cox said. Even small changes - like paying down balances before a statement closes or automating minimum payments - can help improve credit over time.

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Genna Contino

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March 04, 2026 15:52 ET (20:52 GMT)

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