Most drivers know insurers consider a broad range of factors for determining car insurance premiums. They include things like your driving record, where you live, the type of vehicle you drive and how many kilometres you travel annually.
But did you know insurance companies may also check your credit score when calculating your rate? Depending on where you live in Canada, some insurers will check your credit score, and it can potentially influence the premium you get.
Why do auto insurers want to see your credit score?
It’s not uncommon for insurance companies to check a customer’s credit score when calculating a home insurance policy, but that’s not the case when determining auto premiums in all provinces.
That may seem a little odd. After all, auto coverage is not a credit card. Insurers that are permitted to use credit scores when calculating auto rates do so because it may be an indicator to determine the level of risk a driver poses. Thus, the higher your credit score is, the less likely you are to be in an accident and file a claim, or so goes the theory. If you have a good credit score, the lower your policy premium will be. A poor credit score may suggest there is a potential you will miss making a monthly insurance bill payment.
But one of the problems with allowing insurers to check drivers’ credit scores to assess risk is the fact that there is no consistency or standard among credit rating firms when gauging an individual’s creditworthiness.
Nevertheless, insurers will look at various aspects of your credit history, including:
- Your payments history and how many late payments or delinquencies are on your record
- How many types of credit accounts you have including credit cards and loans
- What your credit utilization is (how much credit you are using versus your credit limit)
- How much debt you have
The Insurance Bureau of Canada (IBC) has a voluntary code of conduct outlining how its members use customers’ credit information. It says 85% of property and auto insurers in the country abide by its code, which encourages insurers to obtain their customers’ consent to view a credit report, as well as prohibiting providers from denying or cancelling a driver’s policy based solely on a poor credit rating.
How to check your credit score
Before applying for any type of insurance policy, it may be worthwhile to check your credit score in advance, so you know how you’re rated. The two primary credit rating agencies in Canada are Equifax and TransUnion. Each charges a fee for digital access to your score, or you can request a free paper copy from them once a year.
There are other ways to check your credit score online without paying for it. For example, Borrowell is a Toronto-based alternative lender that provides this service based on Equifax’s data. You may also be able to check your credit score for free through your bank.
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In which provinces do auto insurers use your credit score?
Whether or not an insurer checks your credit score when determining your auto premium depends on where in Canada you live. Here is a quick breakdown of each province and whether they do or not:
|Province||Insurance Credit Check?||Details|
|Alberta||Yes||Insurers must ask for a driver’s consent to check their credit score if you’ve applied for a monthly payment plan.|
|British Columbia||No||B.C. regulates auto insurance and does not use drivers’ credit scores.|
|Manitoba||No||Manitoba regulates auto insurance and does not use drivers’ credit scores.|
|New Brunswick||No||There is no law forbidding the practice, but it is uncommon.|
|Newfoundland and Labrador||No||The practice is banned in this province.|
|Nova Scotia||Yes||Insurers can check your credit score, but they cannot deny you coverage if your score is low.|
|Ontario||No||Currently, insurers are not permitted to check drivers’ credit scores, but the province is considering allowing insurers to do so.|
|Prince Edward Island||No||There is no law forbidding the practice, but it is uncommon. Insurers need to ask for your consent.|
|Quebec||No||There is no law forbidding the practice, but it is uncommon.|
|Saskatchewan||No||Saskatchewan regulates auto insurance and does not use drivers’ credit scores. However, if you wish to buy additional coverage from a private insurer, you may be subjected to a credit check.|
Poor insurance credit score? Here are ways to reduce your premium
Suppose you live in a province where car insurance companies check credit scores, and you know yours isn’t exceptional. If that’s the case, there may be ways you can lower your premium. For example:
- Keep a clean driving record. It’s the one part of an insurer’s risk-rating calculation that you can control. Drive defensively, avoid speeding and distracted driving, and try not to get into a collision.
- Review your policy. Ask your broker or agent to go over your policy with you and see if there are certain coverages you can do without. Also, ask what discounts you may be eligible for such as bundling your home and auto policies with the same provider.
- Increase your deductibles. If you can afford to increase your deductibles, doing so can help lower your premium. Just be sure you’ve got the budget to pay a deductible should the need arise.
- Shop your rate. Regardless of where you live, and whether your policy is up for renewal or not, take a few minutes to shop around for rates. It’s the quickest and easiest way to find out what your options are.