It’s no surprise that your credit score plays a significant role in your finances. But what is the correlation to credit scores and car insurance? In the past, we discussed how it links to your mortgage. But what about your car insurance? Many Canadians might not be aware that their credit score may, in fact, affect their auto insurance rate, depending on where they live.
Insurance companies can use credit scores and car insurance to determine various factors. A strong credit score can work to your advantage, while a lower score may negatively impact your rates. But how much will your credit score impact your car insurance? Let’s take a look at just how much and which provinces are affected.
What Is A Credit Score?
To figure out how a credit score affects your car insurance, let’s first go over what a credit score is. A credit score is a numerical representation of an individual’s creditworthiness, typically ranging from 300 to 900. Many lenders use credit scores to assess the risk of lending to a borrower. These lenders include banks, credit card companies and in some cases, insurance providers.
Credit reporting agencies, such as Equifax and TransUnion in Canada, calculate these scores for people. While doing so, they gather information about your credit history. This can include loans, credit cards and payment history.
Drive with Confidence
Request your free car insurance quote now and get the coverage you deserve.
Do Car Insurance Companies Check Credit Scores In Ontario?
Contrary to popular belief, insurance companies are not allowed to check your credit score without your consent. When getting a quote, some insurers will ask for your permission to perform a “soft credit check.” This is an informal review of your credit report that does not affect your credit score.
When it comes to credit scores and car insurance in Ontario, companies are typically prohibited from using your score to calculate your auto insurance premium or eligibility. Along with Newfoundland and Labrador, these are the only two provinces in which your credit score cannot be checked when shopping for car insurance. This rule was put in place to ensure that rates are primarily influenced by your driving history and other relevant factors rather than financial information.
If you’re curious to learn more about your credit score and car insurance, the IBC Code of Conduct is a great place to start.
What Provinces Allow Car Insurance Companies To Check Credit Scores?
As mentioned above, Ontario and Newfoundland and Labrador are the only provinces in which credit scores and car insurance can affect each other. With this in mind, other factors come into play in other provinces. Let’s take a look:
- Alberta: Yes, credit checks are allowed with consent.
- British Columbia: Not prohibited, but ICBC does not list credit scores as rating criteria.
- Manitoba: Not prohibited, but MPI does not list credit scores as a rating criterion.
- New Brunswick: Yes, credit checks are permitted. There was legislation to change this in 2011, but it was never enacted.
- Newfoundland and Labrador: No, credit checks are not permitted.
- Nova Scotia: Yes, credit checks are allowed with consent.
- Ontario: No, credit checks are not permitted.
- Prince Edward Island: Not prohibited, but IRAC states it is unaware of any insurance companies using credit scores as a factor.
- Quebec: Not prohibited, but uncommon.
- Saskatchewan: Not prohibited, but SGI does not list credit scores as a criterion.
Does a Lower Score Indicate Higher Risks?
If you live in a province where insurers can check your credit score, individuals with a low credit score are more likely to be considered higher risks. This goes with filing an insurance claim or defaulting on payments. If you are outside Ontario, your credit health reflects your likelihood of filing insurance claims. It will also indicate 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?
If you are outside of Ontario and in a province where an insurance company checks your credit score, it will run a “soft inquiry.” This does not appear on your credit report in a way that affects your score.
In all of Canada, insurers must obtain explicit consent before conducting a credit check. You have the right to refuse this check, though your access to certain discounts may be limited. Insurance companies are not permitted to deny or cancel credit if you do not allow them to check your credit.
Can a Good Credit Score Lower Insurance Costs In Ontario?
When it comes to credit scores and car insurance, a good score will not lower your insurance costs. As mentioned above, the province has regulations that prevent companies from using credit scores to determine premiums.
With this in mind, a good credit score may be able to help you if you’re shopping for home insurance in Ontario. In Ontario, home insurers are allowed to use credit scores as one of the factors when determining rates, provided you have given them consent to do so.
Credit Scores and Car Insurance: Conclusion
If you’re outside of Ontario or Newfoundland and Labrador, it’s important to keep in mind that credit scores and car insurance may affect each other. However, if you live in Ontario, premiums are determined by driving experience, driving record, age, gender, location and the type of car you drive. This is why it is important to shop around to ensure you get the best quote for your budget and experience. If you have any questions regarding car insurance, don’t hesitate to contact us at isure today!
Your credit is a reflection of your actions and unforeseen Read more
Getting approved for a mortgage can be daunting. Luckily, isure Read more
When researching car insurance, finding the correct information can sometimes Read more
