It is pretty common for your insurance company to check your credit score when applying for car or home insurance in Canada. 

Most people know that your credit score is a vital financial metric that can affect your ability to get a loan, rent, and even get a job. However, your insurance company will also check your credit score to decide if they will insure you, and it can even impact what your premiums might be. 

We’ll go over why insurers use this information and what impact your credit score can have on your insurance rates.

What does a credit score have to do with insurance?  

Insurance companies believe that your credit score can tell them how much risk they are taking by providing coverage to you. 

Your credit score can reveal a lot about how financially responsible you are. In Canada, your credit has a score between 300 and 900. A credit score above 660 is a sign of good credit. Lenders consider anything lower to be riskier and a sign of low credit. 

Most of us know that banks and lenders use your credit score to judge how likely they will get paid on time. If they think you are a risky borrower, you might not pay them back on time. 

Insurance companies claim that a credit score can predict how risky you might be to insure. They say that your credit score can tell them how much risk they are taking on by providing you insurance coverage. They believe that if your credit score is low, it shows that you are financially irresponsible and might also take on more risk in other parts of your life.

For example, car insurers say that there is a relationship between a low credit score and those more likely to make claims on their insurance. Property insurers believe that those with higher credit scores are more likely to maintain their property.

Insurers are using your credit score to judge how much risk they are taking on when they provide you insurance. Your credit score can be a factor that affects how much you pay for insurance. Insurance companies can include your credit score in their calculations, affecting your insurance premium or coverage.  

How do insurance companies check credit scores? 

Insurance companies use a soft credit check when they need your credit score. 

There are two types of credit checks: 

• Soft inquiries don’t affect your credit. This can be when you check your credit score or when a lender pre-approves you for a loan or credit card. 
• Hard inquiries impact your credit score, and you should avoid them, if possible. When applying for a new loan or credit card, lenders make a hard inquiry on your credit. 

Insurance companies use a soft credit check, and it does not affect your credit score when they check for it. 

According to the Insurance Bureau of Canada (IBC), insurance companies should still ask for consent before checking your credit score. 

Can I still get insurance with a low credit score? 

While you can still get insurance with a low credit score, it can impact how much you pay to get insurance. 

The IBC’s Code of Conduct forbids insurance companies from denying or cancelling insurance policies due to a poor credit score or denying a policy because an applicant doesn’t have any credit history.

Credit Score & Car Insurance

For car insurance, specifically in Ontario, a car insurance company cannot use your credit score to calculate your car insurance premium. However, a lower credit score could mean a higher premium in other provinces.

Home Insurance

Home insurers cannot deny or cancel the insurance if an applicant or policy holder’s credit score isn’t good enough.

While insurance companies can’t deny you property insurance coverage, they might still charge you more if you have a low credit score. If you have good credit, you should ask your insurance company if they will consider your credit score in the price. 

Life Insurance

Some companies may check your credit score when looking for life insurance. They do have to ask for consent, so you will know if they are looking for your credit score. You can turn down their request, but they can also deny you a quote or even coverage, or they might charge you a higher premium. 

How can you improve your credit score to make it more attractive to insurers?

You can improve a low credit score over time. As you pay off debt and become more financially disciplined, your credit score will improve.

There are many ways to improve a low credit score, including making payments on time, paying down your debts, avoiding new debt, and not utilizing all your available credit.

Make payments on time.

Your credit score can dramatically improve when you start to make payments on time. Your credit score decreases every time you miss a loan or bill payment. When you consistently make payments on time, your credit score will improve. 

Pay down debt

If you keep your debt at a manageable level, it can indirectly improve your credit score. When you are not struggling to meet your debt payments, your focus can shift to improving your credit score. 

Avoid new debt

Lenders or banks might charge you a higher interest rate for new loans if you have bad credit. The new debt can be harder to manage and add stress to your finances. It is best to avoid further debt while working to build your credit. 

Don’t utilize all your available credit.

If you keep your credit utilization low, your credit score will improve. The amount of credit you use versus the total available credit makes up a large part of your credit score. 

Bad Credit Doesn’t Have to Get in Your Way. 

Your credit score can affect your ability to get insurance coverage and your policy rate. Sometimes insurance companies use your credit score to decide whether they cover you or calculate your insurance premium. Improving your credit score can help you in your financial life, including how much you pay for insurance.  

If you are worried that a low credit score and debt are getting in your way, a debt expert at EmpireOne Credit can help! Our team of experts can help you find the best way to deal with your debt and can help you improve your credit. Contact us for a free consultation.