Maintaining a good credit rating requires timely payment of bills. Your credit score is likely to get checked when you lease or buy a car, rent an apartment, purchase a property, or apply for a new credit card. When insurance providers issue or renew an insurance policy, these insurers who use credit information will consider several other elements when determining a reasonable premium for taking on specific risks.

Insurance providers use credit scores to determine your coverage and premiums. According to your insurance company, your credit score is a credible reflection of your financial health and risk. As a result, you may qualify for reduced premiums and extra coverage if you have a good credit score.

Your credit score indicates your creditworthiness, with a high credit score suggesting that you are financially responsible and more likely to pay your bills on time.

Because you are responsible for paying premiums to keep your policy valid, your insurance provider will require proof that you will make timely payments. Your credit score will therefore show them whether or not you can make payments on time.

Your credit score may also indicate your chances of filing a claim, which is likely to be filed by someone with a poor credit score. Insurance companies generate money by charging premiums. Therefore they seek to limit the number of claims they have to pay.

Credit scores are important factors that insurance companies use when calculating the price of a policy and the coverage it will provide. However, credit information for car insurance rating or underwriting is prohibited in various provinces and territories. For example, it’s currently banned in:

• Newfoundland and Labrador
• Ontario

The Insurance Bureau of Canada (IBC) Board of Directors authorized the Code of Conduct for Insurers’ Use of Credit Information on December 14, 2010. The Code establishes rules for insurers who choose to use consumer credit information to safeguard consumers.

Insurance providers must comply with the regulations to use your credit information:

• To do a credit check on you, they must get your permission.
• The law states that an insurer cannot refuse or terminate an insurance policy because a consumer refuses to permit an insurer to access their credit information.
• Insurers must base their rating and underwriting decisions on other relevant information available to them in cases when a consumer does not have a credit history.

Personal home insurance and auto insurance companies all around Canada recognize and approve the IBC Code even though it’s voluntary. If you wish to find out if your insurance provider follows the Code, contact them or visit their website.

Insurance providers will request to check your credit score before they determine your insurance policy premium.

A higher score can lead to a lower interest rate and vice versa. However, it’s not mandatory to allow an insurance company to do a credit check on you, especially if you have no credit history. Just keep in mind that the rate you’re charged may be influenced by the fact that you haven’t had your credit checked.