Navigating the complexities of home and auto insurance in Canada can be challenging. A common concern among consumers is whether insurance companies check credit scores. The reality is that the practice varies across provinces and among different insurance providers. This article aims to demystify the question of whether insurance companies check your credit by examining their influence on insurance rates and highlighting the rights you hold as a consumer.
What is a Credit Check?
In the context of insurance, a credit check involves an insurance company examining your credit history. They typically perform what’s known as a “soft pull,” similar to when you check your credit score. This doesn’t affect your credit rating but gives insurers a glimpse into your financial reliability. Insurers don’t have access to your entire credit report, just the credit score. You can learn about the difference between the two terms here.
Why Do Insurance Companies Do Credit Checks?
Insurance providers assess your coverage and premium rates using your credit score. This score serves as a dependable measure of your financial stability and perceived risk level to your insurer. Evidence shows a link between credit scores and the probability of insurance claim submission. A higher credit score indicates financial stability and responsibility, which insurers find favourable. In contrast, a lower score might suggest a higher risk, potentially leading to more claims.
What Determines Your Credit Score?
Credit scores typically range from 300 to 900, where higher scores suggest a greater level of dependability to prospective lenders and insurance companies. Several elements influence the composition of your credit score:
- Payment History: This encompasses your track record with mortgage payments, loans, credit cards, and, occasionally, basic utility bills.
- Credit Utilization: Often termed as your credit-to-debt ratio, this factor assesses the proportion of your available credit that you’re currently using.
- Credit Age: This factor evaluates the longevity of your credit history.
- Inquiries: This includes the number of times you have applied for credit.
- Credit Mix: This looks at the diversity of credit types you’ve managed responsibly.
Does Your Credit Score Affect Home Insurance?
In Canada, except for Newfoundland & Labrador, home insurance providers can check your credit. A high credit score might lower your rates through discounts, but a lower score usually doesn’t raise them. Insurers also consider other factors like claims history and your home’s age and location.
Does Your Credit Score Affect Car Insurance?
- In Ontario, current laws prohibit insurance companies from using credit scores to set premiums or coverage levels. While there’s discussion about potentially lifting this ban, it remains illegal.
- In Newfoundland and Labrador, auto insurance companies are also prohibited from checking credit scores.
- In British Columbia and Manitoba, where insurance is regulated, credit scores are not used to determine insurance rates or coverage.
- Saskatchewan also follows this practice for regulated auto insurance, though some private insurers might conduct credit checks for additional coverage options.
- In New Brunswick, Prince Edward Island, and Quebec, using credit scores for insurance purposes is legal but not widely practiced.
- In Nova Scotia, insurers can check your credit score only with explicit consent, and a low score cannot be a reason to deny coverage.
- Alberta also requires direct consent from drivers for credit score checks by insurance providers.
To learn more about how a credit score can or cannot impact your insurance rates, we suggest you read our detailed article, where we dive deeper into the topic.
Navigating Car Insurance with a Positive Credit Score
Having a strong credit score can be beneficial while seeking auto insurance. Insurers may offer lower premiums to individuals with higher scores, viewing them as lower-risk clients. It’s essential to remember that your credit score is just one of several elements insurers take into account.
Navigating Car Insurance with a Low Credit Score
If you have a lower credit score, don’t lose heart. While it might affect your premiums, it’s not the sole determinant of your insurance rates. Factors like your good or bad driving history, vehicle type, and where you live also play significant roles.
Can You Refuse a Credit Check?
Yes, you can. Insurance companies must obtain your consent before conducting a credit check. Refusing a credit check won’t disqualify you from getting insurance, but it might influence the premiums quoted.
Is Your Credit Score Information Protected?
The Insurance Bureau of Canada’s Code of Conduct instilled in 2010, ensures that your credit information is used fairly and responsibly. The Code includes the following:
- Your insurer needs explicit and informed permission before checking your credit.
- They can’t refuse or end your coverage just because you didn’t let them access your credit information or because of your bad credit score. It can, however, be a factor in your premiums being higher.
- If extraordinary life events have negatively impacted your credit rating, insurers are required to offer guidance.
- Insurers must base their rate and underwriting decisions on other relevant information for those without a credit history.
How Can You and Your Insurer Check Your Credit Score?
In Canada, Equifax and TransUnion are the primary credit bureaus. You are entitled to a free annual mailed copy of your credit report from either credit bureau. Alternatively, for faster access, you can check your credit score for free using an online digital platform like CompareHub.
The Bottom Line
Understanding the role of credit checks in insurance empowers you as a consumer. Knowing how it impacts your insurance options is crucial if you have a stellar credit score or are working to improve it. Remember, a credit score is just one piece of the puzzle. Your driving record, the type of car you drive, the province you live in, the age of your house, and the history of claims all contribute to your insurance rates.
Navigating home or auto insurance in Canada doesn’t have to be a daunting task. Equipped with accurate information and a clear understanding of your rights, you can make well-informed choices regarding all your insurance requirements.