Your credit score affects many different parts of your life. From your ability to get a loan on a used car, to your ability to apply for new credit lines and mortgages. Because your credit score is used to determine your eligibility for so many different loans, it can be hard to understand what is (and is not) affected by a bad credit score in Canada.
At Ride Time, many of our customers are not sure if their bad credit score affects insurance rates. In this article, we’ll explain how bad credit affects insurance rates in Canada.
Canada’s Rules For Use Of Credit Scores In Car Insurance Vary Based On Province
In some parts of Canada, it is unlawful for car insurance companies to access your credit score when you apply for insurance, or file a claim. In fact, an insurer in Ontario got in legal trouble for doing just that, after a customer got in an accident and filed an insurance claim.
However, this is not true everywhere. Here’s what you need to know.
In Ontario, as well as in Newfoundland and Labrador, it is unlawful for an insurance company to use your credit score when underwriting auto insurance. The factors used include your accident history and criminal convictions, but your credit score has no influence on their rates.
In Alberta, an insurer must get explicit consent from a potential customer before looking at their credit score, and the customer is allowed decline to provide consent.
In other provinces, there are not rules and regulations about the practice of using credit history to determine insurance rates. In British Columbia and Manitoba, this is not a problem, because auto insurance is regulated by the province.
However, in provinces like Nova Scotia and Saskatchewan, insurers may be fully able to look at your credit history and use it when giving you a quote, if they so desire.
Can I Save Money By Letting Insurers Look At My Credit Score?
In some cases, yes. In provinces where insurance is allowed to factor into rates, insurers will look at your credit-based insurance score. This is different from a traditional credit score, however.
Credit-based scores consist of:
- Payment history (40%) – Timeliness of past and current debt payments
- Outstanding debt (30%) – How much debt you have
- Length of credit history (15%) – Length of time you have had a particular line of credit.
- New credit applications (10%) – Whether you’ve applied recently for new lines of credit
- Credit mix (5%) – The different types of credit lines (mortgage, auto loan, credit cards) you possess
Notably, demographic and personal information like age, income, marital status, residency, and other such factors are not used in this score.
In the end, If you have a good credit score, chances are you can save a couple bucks by letting insurers look at your credit score. Conversely, a bad credit rating may lead to a higher rate.
However, this practice is much less common in Canada than it is in America – 85% to 95% of American insurers use credit as a factor in insurance quotes, while many Canadian insurers are barred from doing the same, as outlined above.
Why Would Insurers Care About My Credit Score?
This is a good question, and one that has been asked more and more as companies in provinces like Quebec begin using credit-based insurance scores to determine auto insurance rates.
Essentially, a credit-based insurance score looks at your credit history, and draws parallels with accident risk and past insurance claims from other individuals who have similar scores – thereby allowing insurers to determine risk.
Proponents of this practice in the auto insurance industry say that credit rating is a “good metric of financial responsibility”, and that this, in turn, may mean that an individual with high credit is less likely to get into an accident.
Opponents of credit-based auto insurance say the opposite, claiming that credit score is wholly unrelated to the risk of being physically injure in a wreck, or causing a car accident.
Certainly, using credit to determine rates does have a negative impact on Canadians with bad credit. But even if your credit is sub-par, there’s good news – it’s only a small factor in the cost of insurance. As long as you have a good driving record and history of avoiding tickets and accidents, you will likely still get a reasonably-priced quote!
Come To Ride Time For A Used Car – Even With Bad Credit!
At Ride Time, we specialize in serving Canadians with bad credit. If you can give us a valid Canadian licence, proof of employment for 3 months, and a pay stub showing $1,500 in income before deductions, we can partner with our specialized network of 15+ lenders, and get you a great loan on a high-quality used car.
So come in today, and let us help you get the transportation you need in Winnipeg. Take a look at our list of vehicles online, and start shopping now!