If you have poor credit, you could end up paying more for renters insurance

The price you pay for renters insurance depends on where you live, how much coverage you choose and whether you’ve filed any previous claims. But in most states, your rate is also influenced by your credit history — and it can make a surprisingly big difference.

On average, renters insurance rates for people with poor credit are 83% higher than those for people with good credit in states where credit is used as a rating factor, NerdWallet found in a recent analysis. (What’s considered a poor or good score varies by insurer, but these scores are generally in line with FICO credit score ranges.)

How credit affects renters insurance rates

Since the 1990s, insurers have used credit-based insurance scores to help set rates and determine which people they’re willing to insure.

Your insurance score is similar, but not identical, to the credit score banks evaluate when you apply for a credit card or loan. Both scores incorporate the same factors, such as payment history and outstanding debt, but they’re weighted a little differently. If you have a poor credit score, your insurance score is likely low as well.

You might not think the way you manage money has anything to do with how likely you are to file an insurance claim, but studies have shown a correlation: Those with lower credit-based insurance scores are more likely to file claims than those with higher scores.

The result? In most states, those with poor credit often end up paying significantly more for insurance.

"The insurance companies want to accurately predict the chance of a [claim] so that everyone’s premiums are accurate and fair," says Christine Barlow, a chartered property casualty underwriter and managing editor at FC&S Expert Coverage Interpretation. If someone is more likely to file a claim, she says, "logically they should pay more for insurance."

Are credit-based insurance scores fair?

Even if your insurance score does accurately predict whether you’ll file a claim, using it as a pricing factor has become increasingly controversial, in part because of the disproportionate effect on lower-income and minority populations.

"People with bad credit pay a lot more, and that [makes] life a little bit harder for poor people," says Bob Hunter, director of insurance at the Consumer Federation of America. "Because of the demographics in the country, that means it’s also harder for [many] people of color."

"Using credit score for premiums only exacerbates [income] disparity, especially amid the pandemic as many face unemployment or underemployment," said Naeem Siddiqi, a senior adviser and credit risk expert at analytics firm SAS, in an email.

How to find cheaper renters insurance

Those with poor credit don’t need to settle for sky-high rates or go without renters insurance altogether. These tips can help reduce your cost.

Check your credit reports. If your premium goes up, ask the insurance company to explain why, Siddiqi said. Under the Fair Credit Reporting Act, you must be notified if your credit data contributed to an "adverse action" such as a higher rate. If this happens, review your credit report promptly and dispute any errors you find.

Shop around. It's worth getting quotes from at least three different companies to make sure you’re getting the best deal.

Look for discounts. You could save money by bundling your renters and car insurance policies with the same company, says Alan Umaly, president of Westwood Insurance Agency.

Raise your deductible. A deductible is the amount that’s subtracted from your insurance payout if you ever file a claim. Choosing a higher deductible can reduce your premium — though it might not be worth it if you’d have trouble covering that deductible in the event of a claim.

Improve your credit. Paying bills on time and reducing debt can help you build credit over time and eventually qualify for lower insurance rates.