When you call a car insurance company to ask to check their rates, it is not at all unusual for them to request to perform a credit check. Consumers commonly think this is just to see if they are in the habit of paying their bills on time, but there is another reason. Many car insurance agencies also use credit ratings to determine car insurance rates.
According to the Financial Post, lower credit ratings will often result in higher monthly car insurance premiums. The logic, which can be argued, is those who are responsible enough to budget correctly and make their payments will also be responsible for maintaining their vehicle and practicing safe driving habits.
Provinces differ in their approach, however checking credit ratings in order to calculate car insurance rates is relatively common, and may become even more so. In Ontario, checking credit ratings is currently not allowed, but the government has indicated they may revisit the issue. As Manitoba, Saskatchewan, and B.C. have government-regulated car insurance programs, credit scores are not among the criteria for car insurance. Alberta, Quebec, New Brunswick and Prince Edward Island all allow the practice.
Yes, you can refuse
Younger people and new Canadians who have not had a credit card very long, as well as those who just don’t like to charge things on their credit card that much, can be unfairly penalized when insurance companies check their credit score. If, for whatever reason, you haven’t had a chance to build your score, you could end up paying more to use your vehicle.
Insurance companies pull soft credit checks that do not negatively impact credit scores like a hard credit check would and consumers have the right to refuse to have their credit score checked when searching for car insurance. Insurance companies are required to ask for consent to check your credit score, and you don’t have to give it to them. In addition, if you are only purchasing comprehensive insurance and the minimum coverage, in Alberta insurance companies are prohibited from asking.
There are many other factors that insurance companies can look at to determine your car insurance rates, so if you have a low credit score but a good driving record you may want to refuse a credit check. Some additional factors that go into calculating your premiums are your home address, where you store your vehicle, what type of vehicle you drive, your age, your profession, and your gender.
The Insurance Bureau of Canada has entered into an agreement with 85% of their car insurance providers that outlines some basic rules for checking credit scores. Companies that have signed on agree to always asking for consent first, to apply no penalties should consent be denied and to take a look at other details should the driver not have an extensive credit history.
What is a good credit rating?
Borrowell.com is a helpful resource in Canada that, once you sign up, provides credit scores for free. You can also sign up for free credit monitoring, meaning you will receive a monthly credit report. TransUnion and Equifax Canada also provide credit ratings, although they charge a monthly fee. Checking your own credit rating will not affect your score.
Some banks also offer a free credit rating check for their clients, such as Scotiabank, RBC and CIBC.
Credit scores are calculated based on several factors, and your credit report will reveal:
- Your borrowing and payment history, including the number of missed or late payments.
- How much credit you are using in comparison to the amount you have available.
- The length of your credit history.
- Public records such as bankruptcy, liens, accounts in collection, or defaults.
- How many times your credit has been checked.
About 35% of your score is based on your payment history, and another 35% on your used credit versus your available credit, making them the two most important factors by far.
Credit scores in Canada range from 300 to 900. Lenders vary in their requirements, however generally speaking, a score of 760 and up is considered excellent, from 725 to 759 is very good, and from 660 to 724 is good. Those with scores of less than 660 will likely find that they do not qualify for the best terms for their loan. Those with scores of less than 560 may find they do not qualify at all.
How do I improve my credit rating?
If you have a low credit rating, it may take some time to build it back up again, but don’t worry, it can happen. To establish and maintain good credit:
- Always pay your bills on time. If you are having trouble paying, contact your lender to arrange for late or delayed payments. Do not just skip a bill.
- Don’t max out your credit card. Keep the balance well below the limit.
- Don’t take out extra credit. Applying for several credit cards at a time will increase your debt ratio.
- Check your credit report for inaccuracies regularly. If you find something that isn’t correct, contact the lender or file a dispute.
Trust Lane’s Insurance for excellent coverage at competitive rates
Always remember that insurance brokers are uniquely positioned to help you secure the lowest possible rates, regardless of whether or not you have a low credit rating. Brokers know the right questions to ask to ensure you are treated fairly. Contact us to see if our experts can find you lower car insurance rates at our Calgary, Edmonton, Banff and greater Alberta offices.