Until they run into financial trouble, many drivers are unaware that car insurance companies may use their credit score to determine their auto insurance rates. This practice is common in the States and some parts of Europe.
In Canada, insurance companies in all provinces except Ontario, Labrador, and Newfoundland can use credit scores to determine premiums, at least to some extent. The result is as you might expect: lower credit scores translate to higher auto insurance premiums because companies deem people with poor credit a higher risk.
What is an Insurance Credit Score and How Could it Affect My Car Insurance Rates?
The credit score used by most insurance companies isn't exactly the same as your consumer credit score. The score is calculated using criteria that the insurance company considers to be important in deciding how risky you are as a customer. This information is closely held by insurance companies. The average Canadian has a score around 600, while a score of 700 or above is considered to be "very good.". If your score dips below 600, your car insurance premium might increase.
An insurance credit report is a specialized product: your overall credit won't be affected if you apply for an auto insurance policy and the company checks your credit.
Which Provinces Allow Insurance Companies to Consider My Credit Score When Providing Car Insurance Rates?
Ontario was the first Canadian province to ban auto insurance use of credit scores in 2005. In 2011, Newfoundland and Labrador also banned the use of credit scores. Insurance regulators in each province questioned the fairness of the practice. Alberta has a partial restriction on the use of credit scores to determine car insurance premiums. Alberta auto insurers are not permitted to access a driver's credit score unless they've applied for a premium payment plan. If you live in Alberta and are concerned about paying more for car insurance because your credit score isn't the best, consider paying your policy in full without adopting a payment plan.
How Are Insurance Companies Permitted to Use Credit Information When Issuing Car Insurance?
Regulators throughout Canada have questioned whether consumer credit ratings have any application to driving safety and car insurance premiums. Insurance companies contend that yes, they do, and there is an association between poor credit and higher driving risk. The Insurance Bureau of Canada established a voluntary Code of Conduct for Insurers' Use of Credit Information. Before getting your credit report, the insurance company must:
- Obtain your informed consent to get the report
- Take extraordinary circumstances into account (illness, disability)
The code prohibits insurance companies from:
- Denying or cancelling insurance policies based only on poor credit
- Denying a policy because an applicant doesn't have a credit history
- According to the Insurance Bureau of Canada, most Canadian property and insurance companies support and abide by this code of conduct.
If you live in Ontario, Newfoundland, or Labrador, you don't need to worry that your car insurance might go up if you fall behind on bills for reasons outside of your control. Not all insurance companies use credit ratings to determine premiums in the same way. Use Rates.ca's car insurance comparison tool to find the right match for your auto insurance needs.