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Is a credit check required for renters insurance?
Yes, a credit check is usually required to get renters insurance, although it varies on a state-by-state basis.
You should expect your insurance company to run a credit check during the application process unless you rent in one of the following states:
- California
- Hawaii
- Maryland
- Massachusetts
- Michigan
- Oregon
- Utah
Those states have laws that restrict companies from using your credit score when you apply for renters insurance.
Note that these restrictions don’t always constitute an outright ban. In Oregon, for instance, insurers can use your credit score to determine your renters insurance premiums, but cannot decline to write you a policy if you have bad credit. Conversely, California renters insurance providers are not allowed to run your credit at all.
Check your state’s regulations for details.
How does my credit score affect my renters insurance premiums?
Your credit score affects your renters insurance premiums by making them more or less expensive, depending on whether your score is bad or good.
Studies have shown that people with lower credit scores tend to file more insurance claims than people with higher credit scores. Because of this, providers adjust your premium amounts accordingly in order to offset the amount they’ll have to pay if you file a renters insurance claim.
Insurers use special credit scores
When insurers conduct credit checks, they don’t look at your “normal” credit score (i.e. either your FICO score or VantageScore, which are the two credit scores that most people are familiar with). Instead, they use special credit-based insurance scores.
These special scores are determined by the same factors that affect your ordinary credit rating, which means that in practice, you don’t have to worry about the difference between them. If you have a good FICO score, you’ll also have a good credit-based insurance score, and vice versa.
Factors that determine your credit-based insurance score
In descending order of importance, the three biggest factors that determine your credit score are:
- Your payment history: Have you ever missed a payment, and if so, how many times?
- Your credit utilization: This is the amount of your available credit that you’re currently using. Using too much of your credit harms your score.
- The length of your credit history: The longer you’ve been using your credit, the more of a “known quantity” you are, and the better your score will be.
There are several other factors, but those three make up most of your score — unless you’ve had your identity stolen or have something unusually bad on your credit history, like declaring bankruptcy or defaulting on a loan.
If you use your credit occasionally, make your payments on time, and have never suffered financial catastrophe, your credit score will probably be good enough that your insurer won’t significantly raise your renters insurance premiums.
Can I get renters insurance if I have a bad credit score?
It’s possible to get renters insurance if you have a bad credit score, but your insurance premiums will be higher. Fortunately, even with bad credit, the price of renters insurance is still quite low ($15 per month on average).
Renters insurance for people with bad credit
If you’re worried about having higher premiums, there are several steps you can take to get discounts on your policy to counteract your poor credit score. You can:
- Bundle your auto and renters insurance policies together
- Install safety measures like deadbolt locks, weatherproof windows and doors, a fire alarm, and a home security system
- Choose a plan with a higher renters insurance deductible
- Buy less coverage, e.g. $15,000 in personal property coverage instead of $30,000
- Apply for an actual cash value policy instead of a replacement cost policy (if your insurer offers that choice)
Will a credit check for renters insurance affect my credit score?
No, submitting a credit check for renters insurance won’t affect your credit score. The type of credit check that insurers conduct is known as a soft inquiry (or soft pull). While soft pulls can appear on your credit report for up to two years, they don’t affect your credit score.
A soft inquiry occurs when your credit is run for any purpose other than money lending, such as:
- You checking your own credit score
- Your employer or landlord running your credit as part of a background check
- A creditor checking if you’re eligible for pre-approval.
Landlords also conduct credit checks
In addition to your insurer, your landlord might also conduct a credit check as part of the rental screening process. Landlords are legally allowed to do this, but they have to ask for your permission first.
What do landlords look for on a credit check?
Landlords often use credit checks to verify your employment history and current debt-to-income ratio. They’ll also usually check your numerical credit score.
There’s no universal credit score required to rent an apartment, but in general, if your score is lower than 600, you may have a harder time finding a landlord who will rent to you. You’ll probably still be able to get an apartment, but it’ll be more difficult.
In addition to your numerical credit score, landlords also pay close attention to your payment history. If you’re frequently late on your loan or credit card payments, they’re more likely to consider you a risky tenant.
If you have a history of credit trouble, you may want to prepare documentation showing that you’re reliable. For instance, you can offer to show your prospective landlord bank statements or canceled checks that demonstrate you usually pay your rent on time. You may also want to consider providing your previous landlords as references.
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