Low credit scores bring big home insurance cost jumps to Arizonans
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Arizonans with low credit scores will pay a greater percentage-based penalty on their home insurance than people in almost any other state, a new analysis finds.
The big picture: People with low credit scores can expect to pay nearly $2,000 more annually on average for home insurance compared to those with high scores.
Why it matters: Credit scores aren't necessarily indicative of somebody's ability to pay their bills — and tying them to insurance prices can disadvantage low-income and minority homeowners, among others.
Driving the news: U.S. homeowners with low credit are charged $1,996 more annually compared to otherwise identical homeowners with high credit, per a new report from the Consumer Federation of America and the Climate and Community Institute.
- That's based on over 600,000 nationwide "test quotes" representing "what a typical, hypothetical homeowner would be charged for homeowners' insurance."
- The researchers controlled for variables other than credit score. They defined a "low" score as about 630 on the 300-850 FICO range, and a "high" score as about 820.
By the numbers: In percentage terms, Arizona (168%) has the second-biggest "credit penalty" — the difference between annual premiums for otherwise identical low-credit and high-credit policyholders — in the U.S.
- Only Pennsylvania (181%) was higher.
- 23 states have penalties of 100% or more, where low credit will at least double the cost of your insurance.
Yes, but: In raw dollar terms, Arizona's average penalty isn't nearly as high as other states — with the 17th-highest dollar penalty ($2,125).
- Oklahoma ($4,138), Louisiana ($3,754) and Arkansas ($3,083) have the biggest credit penalties in terms of total dollars.
- Three states — California, Maryland, and Massachusetts — block insurers from using credit scores in pricing home coverage.
Between the lines: Homeowners' actual premiums are based on many factors, including the value, condition and materials of their house, their work and marriage status, and more.
- But credit scores are part of that mix in most of the country, putting many people at a disadvantage.
- Low-income people and people of color tend to have lower credit scores, for example.
- And young people just starting out in life need time to build up their credit history. Student loans can help if they're paid on time — otherwise they can be a crushing weight.