Why do insurers need my credit score?

Insurance companies have been using credit scores for years to price insurance products.  In Canada, the practice of using credit scores for auto and property insurance is not allowed in some territories and provinces such as Ontario and Newfoundland and Labrador.

In other provinces where the practice is allowed, major insurance companies look at credit scores as a rating factor to calculate cost of premiums for individual customers.

Credit score is used together with more traditional factors like age of home, claims history, location, and crime rate to determine the risks and the appropriate premium to be charged for home insurance.

Whenever you obtain new insurance or renew a current policy, depending on your province, your insurer may obtain credit information to calculate a fair premium.

The Relationship between Credit Score and Insurance Premiums

To insurance companies, a credit score demonstrates a person’s level of responsibility and behavioral patterns, especially in managing finances.  Studies show that a credit score is directly related to how frequent and severe insurance claims are filed.

Insurers use good credit scores to reward customers with competitive premiums.  Regulations governing the use of credit scores require insurance companies to get a customer’s express consent before collecting their credit information.  In case you don’t want to provide consent, your insurer may say that it can’t provide you with a discounted premium.

You can check the Code of Conduct for Insurers’ Use of Credit Information from the Insurance Bureau of Canada.

What’s considered a good Credit Score in Canada?

The average Canadian’s credit score is about 650.  A credit score from 660 to 724 is good, and a credit score of 725 to 729 is very good. Any score higher than 729 is excellent. The higher your score, the better your credit is.

Your credit score follows you throughout your life and has a huge impact on most of your financial transactions

Things that Affect your Credit Score

There are several things that impact your credit score. But the most important factor is whether you pay your bills in a timely manner.  This factor alone is equivalent to 1/3 of your score and even a single missed payment can have a negative impact.

Another factor that affects your credit score is the amount of credit you use, including your credit cards.  Experts suggest staying below 35% of your available credit.

Maintaining a good credit score is a simple way to ensure your insurance premiums are as low as possible.

There’s no need to worry about inquiries from insurers on your credit report affecting your credit score as they don’t have a negative effect.

Canadian Insurers Rely on Credit Scores for Insurance Rates

More than half of insurance companies in Canada use credit scoring.  These companies say that consumers should be happy because a good credit score benefits them, insurance wise.

They are also quick to point out that they can’t deny insurance because of a bad credit score but it will disqualify you from getting a good premium or discount.  As an example, a home insurance monthly premium can double after a bankruptcy or loss of employment.

Keep in mind that insurance companies use other factors aside from credit score to calculate your premiums.

Credit Score and Insurance Score

Major insurance companies compile an insurance score on their customers that depends largely on the credit score.  However, they also take in consideration other factors, too.

A bad credit score can lead to a poor insurance score which can cost you double on your premiums.

How to Improve your Credit and Insurance Scores

Organizations known as credit reporting agencies, Equifax and TransUnion, maintain credit reports used by lenders, insurers, and other entities.

It is important for you to know your credit score and obtain a free copy once a year.  There is a small charge to get your credit score with your report.

Your credit report contains personal information such as your employment, a list of organizations who have obtained your credit report, your history of payments, and collections, judgements, and bankruptcies.

To improve your credit score, you can take the following steps:

• ✓ Ensure you pay your bills on time.
• ✓ If you have delinquent accounts, start repaying them and get proof of payment once you have completely settled your debt.
• ✓ Reduce your debt and avoid taking on new and unnecessary debt.
• ✓ Never bounce a check as this is reported to the credit bureaus.
• ✓ Report inaccurate information to Equifax and TransUnion and start a dispute resolution.

Save Money from Lower Home Insurance Premiums

For home insurance, insurance companies may consider history of prior losses, distance to fire stations and hydrants, use of a home security system and smoke detectors, along with credit scores, to calculate your premiums.

To improve your insurance score, you can keep a claims-free history (save claims for large losses), employ a professionally-monitored home security system, and maintain your home well.

Choose your home insurance company wisely based on integrity, reputation, and customer service. Learn how to choose a good home insurance company for your peace of mind.

Getting More from your Home Insurance

Home insurance is designed to protect a homeowner from losses due to damage, theft, and liability.  Over the years, home insurance has become more encompassing, with more features offered by major insurers.

It’s important for you to get the right type of coverage for your home insurance.  Whether you live in a condo, a cottage, or rent a house, there is a home insurance product that is designed for your needs.

But aside from these traditional home insurance solutions, you can also look at other types of protection for homeowners.

Home Business Insurance

Some people operate a business from home. You may be using your home as an office or as storage for inventory.  Whatever the reason, it is important to ensure that you have insurance for your business.

Your home insurance won’t cover losses for your inventory or equipment for business.  However, it is possible to expand your home insurance for your home business.

Do you teach from home?

Does your home business increase traffic to your home?

Do you keep office equipment in your home office or some of your inventory?

You may need additional protection. You can talk to an insurance broker about upgrading your coverage to protect your business exposures.

Identity Theft Insurance

Identify theft is a new type of crime but has victimized thousands of people.  It could take just a few minutes for someone to steal your identity. But it could take you years to restore your reputation, your credit standing, and maybe never to recover your financial losses.

There are hundreds of insurance providers in Canada offering customized insurance solutions with different insurance products.

Identity theft insurance can protect you and others in your home such as your spouse and children under 21.

You can check with an insurance broker how to add identity theft insurance to your home insurance coverage.

Sewer Back-Up Coverage

Flood from sewage may cause extensive damage to your basement and your health.  If your house is located in a low-lying area, you have the option to buy sewer back-up protection with your home insurance.

Before you buy sewer back-up insurance, you should check:

• Your elevation relative to sea level
• Size of your sewer line and your neighborhood’s density
• Occurrence of severe weather in your area and number of times sewer back-ups have occurred in the past

A preventive measure you can take is to install a backflow prevention valve directly into the sewer lateral at your basement wall.

Not satisfied with your home insurance coverage? Talk to our insurance partners to find the best home insurance deals.

Get Your Home Insurance Quote and Find a Better Home Insurance Deal

Tired of paying high home insurance premiums? Are you looking for a better home insurance package?

The best way to find home insurance is to get your free home insurance quote from a Canadian insurance company.

Our partner insurance brokers and agents work with some of the biggest insurance companies in Quebec and can offer you their products.

Take 2 minutes to fill-out our free short online form to receive your home insurance quote, from one of our partners.

Then decide if you want to accept this offer.