Credit Scores And Your Insurance

What you need to know about credit scores and insurance in Canada

Your credit score could play a significant role in your finances and your insurance. Many Canadians might not be aware that their credit score could affect their auto insurance rate depending on where they live.

Insurance premiums can be affected by various factors, including insurance companies' use of credit scores. A strong credit score could work to your advantage, while a lower score could negatively impact your rates. The ability for insurers to use your credit score varies nationwide and can significantly impact premiums based on location.

This blog post will explore how credit scores impact insurance and which provinces are affected.

Three main takeaways about credit scores and insurance

• Ontario, Newfoundland and Labrador have banned insurance companies from using an individual's credit score to determine rates. Other provinces need your consent to run the check.
• The Insurance Bureau of Canada has introduced a voluntary Code of Conduct for insurers' use of credit information.
• Lower credit scores can flag you as a riskier driver, so you may see higher rates if you fall into that category.

What is a credit score?

A credit score numerically represents an individual's creditworthiness, usually ranging from 300 to 900. Lenders, such as banks, credit card companies, and some insurance providers, utilize credit scores to evaluate the risk of lending money to a borrower. Credit reporting agencies, such as Equifax and TransUnion in Canada, calculate credit scores. These agencies gather information about your credit history, including loans, credit cards, and payment history.

Do insurance companies check credit scores in Ontario?

Insurance companies are not allowed to check your credit score without your consent. When getting a quote, some insurers will ask your permission to perform a soft credit check. You have the right to deny this request without penalty.

In Ontario, insurance companies are typically prohibited from using your credit score to calculate your auto insurance premium or eligibility. This rule ensures that rates are primarily influenced by your driving history and other relevant factors instead of financial information.

If you’re curious to learn more about insurance and credit checks, take a look at the IBC Code of Conduct.

Do low credit scores indicate higher auto coverage risks?

If you live in a province where insurers can check your credit score while you are shopping for insurance quotes, individuals with a low credit score are more likely to be considered a higher risk for filing an insurance claim or defaulting on payments compared to those with excellent credit.

Your credit health reflects how likely you are to file car insurance claims, which costs providers more money. It also indicates to them how likely you are to make late payments or have missed auto insurance payments.

Will a credit check from an insurance company harm my credit score?

When an insurance company checks your credit score, it typically does so through a "soft inquiry," which does not affect your credit score. Soft inquiries do not appear on your credit report in a way that affects your credit score. They are recorded but are not visible to other lenders or affect your overall credit profile.

In Canada, insurers must obtain your explicit consent before conducting a credit check. You have the right to refuse this check, though it might limit your access to certain discounts. Insurance companies are not permitted to deny or cancel coverage if you do not allow them to check your credit.

Insurers should be transparent about how they use credit information and explain any impact on your costs. If you're concerned about your credit score, you can ask the insurer how they factor it into their risk assessment.

Can a good credit score lower insurance costs in Ontario?

No, a good credit score cannot lower insurance costs for your vehicle in Ontario. The province has regulations that prevent companies from using credit scores to determine premiums.

However, for home insurance in Ontario, a good credit score could potentially lead to lower costs. Home insurers are allowed to use credit scores as one of the factors when determining rates, provided they have your consent.

Where can a credit score be used to set insurance rates in Canada?

Many Canadians may not realize that their credit score can affect their rates—unless they live in Ontario or Newfoundland and Labrador.

These two provinces are the only ones in Canada where companies are prohibited from using credit score data to influence coverage costs. In Ontario, for instance, your premiums are determined by your driving experience, driving record, age, gender, location, the type of car you drive, how you use your vehicle, and the level of coverage you choose.

In contrast, if you’re comparing options for car insurance in Alberta, your insurer can consider your credit score when setting your premium—but only with your consent. If an insurance company requests your credit score, you can decline.

Nova Scotia auto insurers may ask for your credit information to calculate your premium, but they cannot deny coverage if you choose not to provide it.

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Check local regulations around credit scores and your policy

When comparing your options for coverage, always check the rules in your province regarding credit scores and premiums. More knowledge will empower you to advocate for yourself with your provider and help you make better decisions aligned with local rules and regulations.