Credit score can raise NC homeowners premiums more than storm risk, study finds

Your credit score may matter more than hurricanes or wildfires when it comes to your homeowners insurance bill.

A new report from the Consumer Federation of America and the Climate and Community Institute says North Carolina homeowners with low credit scores pay on average 125% more for coverage than those with high scores, adding about $3,047 a year to their premiums.

In Wake County, the penalty is nearly the same: 124%, or $2,103 more per year. Homeowners with medium credit scores pay 45% more, or an extra $748 annually.

“Homeowners pay more than double in North Carolina just because of their credit score,” said Sharon Cornelissen, a co-author of the report and CFA’s director of housing.

Nationally, the study found that a typical low-credit homeowner pays about $1,996 more each year, nearly double the cost for a high-credit neighbor with an identical home and policy. Medium-credit customers pay an average of $792 more annually.

“We find that credit scores shape homeowners insurance pricing a lot,” Cornelissen said. “It’s actually more expensive to have a low credit score than to live in a high disaster area.”

The analysis compared test quotes for the same property across virtually every U.S. ZIP code, changing only the credit score tier: high (about 820 FICO), medium (740) or low (630). The researchers say they held 157 other variables constant, including roof age, coverage limits and claims history.

Cornelissen argued that using credit in pricing is “extremely unfair” because it can penalize younger buyers, people with student loans or medical debt, and homeowners of color, who are statistically more likely to have lower scores. She said credit scores also often drop after disasters, when residents may need to take on debt to recover.

“For insurance companies, once you stop paying your premiums, they will just drop you from coverage,” Cornelissen said. “So it doesn’t make sense to charge more for lower credit like you would for a mortgage.”

Three states — California, Maryland and Massachusetts — ban the use of credit in setting homeowner insurance rates. Cornelissen said decades of data from those states show no negative impact on affordability.

For North Carolinians, she recommends checking credit reports for errors, seeking nonprofit credit counseling, and asking insurers to re-rate policies if scores have improved.

“Homeowners insurance is to protect people’s biggest belonging,” Cornelissen said. “Even as climate disasters become more important and are really shaping insurance prices, using credit scores to charge more are making it even more unaffordable for people to stay in their home or to have insurance at all.”

Industry response

The insurance industry defends the practice, saying credit-based scores are a proven tool for assessing risk.

“Insurance industry actuarial data has shown that credit-based insurance scores are strongly correlated with claim frequency and severity,” said Mark Friedlander, a spokesperson for the Insurance Information Institute. “Without them, insurers might lose a statistical tool that helps differentiate high-risk and low-risk policyholders.”

Friedlander warned that banning credit-based insurance scores could “potentially hurt both insurance companies and consumers.” He said without credit data, insurers may rely more on broader factors like age, location, or claims history, which could lead to higher costs for some customers.

“When risk is harder to assess, insurer loss ratios can increase, which can lead to rate hikes across the board,” Friedlander said. “Today, customers with strong insurance scores often get lower premiums. Removing insurance scores can flatten the risk pool, meaning many careful, low-claim or no-claim policyholders could see rate increases.”

He also cautioned that insurers unable to price risk accurately may pull back from certain markets or products, reducing competition and raising rates overall.

What NC law says

North Carolina regulators say state law already places limits on how insurers can use credit scores.

“North Carolina law prohibits insurance companies from using credit scoring as the sole basis for terminating an existing residential property or private passenger motor vehicle policy without consideration of other risk factors,” said Barry Smith, a spokesperson for the N.C. Department of Insurance.

Insurers can use credit scores to discount rates, Smith said, but if a credit report is used with other criteria to raise premiums, the company must notify the policyholder in writing. That notice has to include the reasons for the increase, details on the credit factors involved, and contact information for the credit bureau that provided the data, as well as the consumer’s rights to dispute errors.

Smith said insurers use different criteria when setting premiums and encouraged homeowners facing high costs to shop around for a better rate.

Consumers with questions can call the Department’s help line at 855-408-1212.