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 yearly.
But did you know insurance companies may also check your credit score when calculating your car insurance rate? Depending on where you live in Canada, some insurers are allowed to check your credit score and it can potentially influence the premium you pay.
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 the premiums for a home insurance policy, but that’s not the case for auto insurance premiums in all of the provinces.
That may seem a little odd. After all, auto coverage is not a credit card. In provinces where insurers are permitted to use credit scores when calculating auto rates, they do so because it may be an indicator of 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 also suggest there is a potential you will miss making a monthly insurance bill payment.
One of the problems with allowing insurers to check drivers’ credit scores to assess risk, however, 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
- How much credit you are using versus your available credit limit
- How much overall debt you have on the books
The Insurance Bureau of Canada (IBC) has a voluntary code of conduct outlining how its members use customers’ credit information. The vast majority 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 so you know how you may be rated. The two primary credit rating agencies in Canada are Equifax and TransUnion. Each charges a fee for digital access to your score, but you can also request a free paper copy from them once a year.
