Why It Matters: Home Insurance and Your Credit Score

If you purchased a home or condo insurance policy lately, you were likely asked to consent to the insurance company using your credit score to help determine your premium. Perhaps the question didn’t surprise you since so many businesses require your credit score, but did you wonder why? Why would an insurance company give you a discount for having a good credit score?

For many years now, insurance companies have offered the option to use your credit score as a factor in the rating of your home and condo insurance policies. The reasoning is simple: research shows that people with higher credit scores tend to make fewer insurance claims. Whether it’s because they better maintain their property, or because they can pay for damage themselves, those with stronger credit are less likely to make a claim, and are, therefore, often rewarded with lower premiums.

Of course, credit scores fluctuate, and having a low credit score does not necessarily indicate financial instability. Insurance companies are not permitted, under the Insurance Bureau of Canada’s (IBC) Code of Conduct for Insurers’ Use of Credit Information, to decline or cancel an insurance application or policy based solely on an applicant’s credit score, and are required to use the most up-to-date credit information available.

Since credit is so personal, some people are not comfortable with consenting to its use in insurance. The use of credit scores is optional, but refusing to consent means you likely will not access the best rates available to you.  Savings can be as low as few dollars, or as high as hundreds, even thousands on high premium policies.

A few things to know:

  • Having a high credit score does not guarantee access to lower premiums. Credit score is one of many factors used in determining rate, and even those with great credit scores do not always see a reduction in premium.
  • Some insurance companies give an automatic discount for consenting to credit score, no matter what your credit score is. The discount is higher for those with high credit scores, but some companies give you a little something just for trying. (It’s the participation ribbon of home insurance.)
  • If you consent to rating by credit score on your personal insurance policy, your credit score will not be negatively impacted. Insurance companies do a “soft hit” on your credit, not a formal credit check (like if you take out a loan, or buy a phone on contract).
  • The protection of your personal information is a priority. Your credit rating is not shared with anyone – neither your broker, nor the insurance company see your credit score.
  • You can withdraw your consent at any time – depending on the insurance company, you may need to do so in writing.

For more information, read the 2003 article explaining the research and rationale in using credit scores in personal insurance, by the Insurance Information Institute, an American non-profit created to help the public understand insurance.

-Morgan Thomas, BA
Administration Coordinator and Personal Insurance Trainer