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Does Renters Insurance Affect Your Credit Score?
December 12, 2024
If you’re getting a renters insurance policy, you might wonder: does it show up on your credit report or impact your credit score? The simple answer is no – renters insurance itself doesn’t affect your credit score in any direct way.
Unlike a credit card or loan, your insurance policy isn’t a debt or line of credit. It’s just a service you pay for. However, there are a couple of indirect ways it can intersect with your credit, which are worth understanding so you can avoid any pitfalls.
Credit Checks for Renters Insurance (Soft Inquiries Only)
When you apply for renters insurance, most insurers will do a credit check to obtain your credit-based insurance score. The good news is that this is a soft inquiry, not a hard inquiry. Hard inquiries can ding your credit score a few points. Soft inquiries do not. Insurance inquiries fall into the soft category, meaning getting quotes or buying a renters insurance policy will not lower your credit score.
You might see an insurance inquiry noted on your personal credit report, but it’s only visible to you and doesn’t factor into your score calculation at all. Lenders won’t see it when they pull your credit for other purposes. In short, shopping for renters insurance has zero impact on your credit, so feel free to get multiple quotes.
Paying Renters Insurance: No Credit Reporting
Does paying your renters insurance bill on time improve your credit score? No, it doesn’t – because insurance payments are not reported to the credit bureaus. Unlike loan payments or credit card bills, which do show up on your credit history, your insurance premium payments aren’t recorded. That means you won’t get any credit score boost for paying your renters insurance each month.
On the flip side, if you miss a payment or cancel your policy, that alone isn’t going to hurt your credit score either. The insurance company might charge you a late fee or eventually cancel your coverage for non-payment, but they generally do not report late insurance payments to credit agencies. So a one-week-late insurance bill isn’t going to show up as a black mark on your credit report the way a late loan payment would.
There is one major exception: if you truly fail to pay what you owe for a policy and it goes to collections. Let’s say you stop paying your renters insurance and ignore the bills. Eventually, the insurer could send the unpaid balance to a collections agency.
If that happens, the collection account could be reported to the credit bureaus, which would hurt your credit. But this is a rare scenario for most renters. To be safe, don’t leave any bill unpaid that could end up in collections.
Does Having Renters Insurance Help Your Credit in Any Way?
Having renters insurance is a smart financial move to protect your belongings, but it doesn’t directly help your credit score. For example, some people think that having any bill and paying it might build credit – but only certain accounts build credit.
These include things like credit cards, auto loans, mortgages, student loans, etc., which are credit lines or loans. Renters insurance isn’t credit-based – it’s a prepaid service. So whether you have it or not doesn’t show up in your credit file.
That said, indirectly, maintaining insurance (and other bills) responsibly is part of overall good financial habits. You might use your credit card to pay the insurance premium, and then pay the card off – that could help build credit by showing positive payment history on the card. But the key is it’s the credit card usage that matters, not the insurance itself.
Some insurers offer the option to pay in installments (monthly) or in full for the year. Choosing to pay monthly does not mean you are taking a loan – it’s just a convenience, often with a small fee. It won’t establish any new credit account or anything on your reports.
Just be wary of any financing arrangement outside the insurer – for instance, if a third-party financing company is involved to break up your payments, that might create a credit account. But with mainstream renters policies, that’s usually not the case; the insurer simply bills you monthly as a courtesy.
What About Credit Scores and Renting an Apartment?
It’s easy to confuse renters insurance with other aspects of renting that do involve credit.
For clarity:
- Landlord credit checks: When you apply to rent an apartment, landlords often pull your credit report. That is unrelated to renters insurance. It’s typically a hard inquiry, and your payment history could matter to them. But this is about qualifying to rent, not about getting insurance.
- Paying rent and credit: Normally, paying your rent isn’t reported to credit bureaus either. It won’t boost your score.
The key takeaway is that your renters insurance policy lives outside of the credit score realm. It’s financially responsible to have coverage, but FICO and VantageScore don’t give you any brownie points for it.
Bottom Line: No Need to Worry
Having renters insurance won’t impact your credit score, positively or negatively, in the usual course of things. The credit check to get insured won’t hurt your score, and your premium payments aren’t reported to the bureaus. Just avoid letting any bills get to a collections stage, as you would with any financial obligation.
In summary, don’t hesitate to buy renters insurance out of fear for your credit – there’s no downside on the credit front. Instead, enjoy the peace of mind that comes with knowing your stuff is protected, and keep managing your credit cards and loans responsibly to build that score through other means.
Frequently Asked Questions (FAQs)
Do renters insurance companies report to credit bureaus?
No, insurance companies do not report your premium payments (or non-payments) to the credit bureaus. Your renters insurance policy and payment history stay off your credit report. Only if you default on payments and it goes to a collection agency might it show up on your credit.
Will a renters insurance quote be a hard inquiry on my credit?
No. Getting a renters insurance quote results in a soft inquiry on your credit, not a hard inquiry. Soft inquiries have no effect on your credit score. You can get multiple insurance quotes without any worry about hurting your credit.
Can renters insurance build my credit score?
Unfortunately not. Paying your renters insurance on time doesn’t build credit because those payments aren’t reported to the credit bureaus. If you’re looking to build credit, you’ll need to focus on credit accounts like credit cards, loans, or other bills that are reported (for example, some services can report your rent payments to bureaus).
If I cancel my renters insurance, does it hurt my credit?
Simply canceling your renters insurance policy will not hurt your credit score. There’s no credit penalty for not having insurance. Just make sure you don’t leave an unpaid balance. If you owed money on the policy and didn’t pay it (and it somehow went to collections), that could be an issue. But if you cancel properly or let it expire at end of term, your credit is unaffected.
Why do insurers check credit if it doesn’t affect my score?
Insurers check your credit to help determine your premium – they use a credit-based insurance score internally to assess risk. This process doesn’t affect your credit score, but it helps the insurance company decide how much to charge you. So, while it doesn’t show up on your credit report, your credit does matter for the price you pay on renters insurance in most states.
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