How Your Credit Score May Affect Your Car Insurance Rate
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.
Right now, only insurance companies in Alberta can check your credit score when calculating your rate? But that could change in the near future here in Ontario.
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 doesn’t affect your premium, just whether or not you qualify to make monthly payments on your policy, or have to pay one lump sum up front.
But having your credit score affect your car premiums 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.
Source: Liam Lahey, for insurancehotline.com