Before you start shopping around for car insurance, you may be wondering whether applying for car insurance quotes will affect your credit score. After all, the best way to find the right car insurance coverage for you is to apply for multiple quotes from several companies, so of course, you'd want to make sure that multiple quotes won't affect your credit. Here's what you need to know.
Does getting a car insurance quote impact your credit score?
No, not usually. Getting free car insurance quotes shouldn't affect your credit score because insurance companies in Canada typically run a soft credit check when you're just shopping around, and soft checks don’t impact your score.
While they look at your credit history, they do not use the same credit score that a mortgage lender or bank would. Instead, they rely on something called a credit-based insurance score to help figure out your rates. This means you can apply for as many car insurance quotes as you like without having to worry about it affecting your credit.
How do insurance companies check your credit?
As we mentioned, insurance companies usually do a quick soft credit check, or a "soft pull," on your credit, which lets them take a look at your credit report without leaving any marks behind. This helps them gauge how well you manage your money without it impacting your credit score.
Credit inquiries come in two forms: soft inquiries and hard inquiries. A soft credit check, also called a soft inquiry, won’t impact your credit score, but a hard credit check, or hard inquiry, will. Lenders usually do a soft check for things like preapprovals, while a hard check happens when you officially apply for credit. We will explore both types of credit inquiries in detail below:
Soft inquiries
Now you know that soft credit checks have no impact on your credit score. They're simply a way for car insurance companies to get a quick look at your financial situation when you're shopping for quotes. These soft inquiries, also known as involuntary inquiries, are completely invisible to other lenders because they are not actively applying for credit. They're just checking your score.
Hard inquiries
A hard inquiry is voluntary because it means you’ve requested the credit check by applying for credit. When you fill out an application for a loan, you give the lender permission to check your credit, and they can use that information to decide what terms to offer and whether to approve you. Because you're actively applying for credit, these checks are visible to other lenders. Hard credit checks, unlike soft inquiries, can temporarily lower credit scores.
Insurance companies should always be upfront about how they use your credit information and explain how it could affect your rates. If you're worried about your credit score, you can always ask the insurance company how they take it into account when assessing risk.
What is a Canadian credit score?
A credit score in Canada is a number that reflects how creditworthy you are, typically ranging from 300 to 900. Financial institutions, credit card companies, other lenders, and even some insurance providers, use your credit score to assess the risk of lending money to you.
In Canada, credit reporting agencies like Equifax and TransUnion calculate your credit score by looking at your credit history, including things like credit cards, loans, and payment history.
Do all car insurance companies check credit scores in Canada?
No, not all insurance companies will check your credit score. It depends on what province you live in. In many provinces, like Alberta or British Columbia, auto insurance companies can reach out to major credit reporting agencies like TransUnion or Equifax to check your credit when determining rates.
However, in Canada, insurers need your explicit permission before they can run a credit check. You have the right to say no. Also, insurance companies can't deny or cancel your coverage just because you refuse a credit check.
Further, specifically in Ontario and Newfoundland and Labrador, insurance companies aren’t allowed to use your credit score to determine your car insurance rates. Instead, your car insurance premiums are based on factors like your:
- Driving record
- Age and gender
- Location
- Car's make and model and how you use it
- Coverage amount
- Deductibles
- Claims history
Why do insurance companies check credit scores?
Insurance companies sometimes check your credit score, with your permission, to assess the risk of insuring you. If you live in a province where insurers can check your credit score when you're shopping for quotes, having a low score might make you seem like a higher risk for filing claims or missing payments compared to someone with a high score.
Your credit health gives insurers a sense of how likely you are to file car insurance claims, which costs them money. It also signals how reliable you might be with making on-time payments for your insurance. As a result, drivers with higher credit scores often end up paying lower premiums than someone with a lower credit score.
So, if you live in a province that can use credit scores as a factor to determine rates, and you have a high credit score, you may be able to save money with a credit check.
Will purchasing auto insurance affect your credit score?
No, it won't. As we mentioned earlier, insurance companies do not use the same credit score that a mortgage lender or bank would. Instead, they use a credit-based insurance score to help determine how likely you are to file an insurance claim and figure out your rates. A credit-based insurance score typically looks like things like:
- Your overall debt
- Your track record of making on-time payments
- The number of loans and open credit lines you have and how long you've had them
- How recently you applied for credit
- Your credit utilization rate
- If you've had any foreclosures or bankruptcies
When you apply for insurance in Canada, you can give the company permission to access your credit and other details they need to figure out your premium. Remember that it's only a soft inquiry, so it won't affect your score.
What about your payments, you may ask, since payment history is such an important part of your credit score? Well, insurance companies don’t report your premium payments to credit bureaus because insurance isn’t considered a type of credit. However, if you default on your car insurance payments and they end up with a collections agency, this can negatively affect your credit score.
Do car insurance companies check credit in Ontario?
No. Ontario is one of only two provinces in Canada where car insurance companies aren’t allowed to use your credit score to determine your insurance rates.
Is auto insurance in Canada influenced by your credit score?
It can be. Insurance companies can use your credit scores in most provinces to assess your level of risk when determining your car insurance rates. However, they must have your permission to run a credit check.
Can insurance cancel your policy?
Yes, your insurance can cancel your auto policy without asking, but they’re required to give you written notice before doing so. ;This notice serves to inform you of the cancellation and provides you with the opportunity to address any issues or seek alternative coverage. Insurers may cancel a policy for reasons such as non-payment, a suspended driver's license, or changes in risk factors. It's important to carefully read any correspondence from your insurer to understand the reason for cancellation and the steps you might need to take.
Is your credit score affected by obtaining a car insurance quote?
Yes! Driving experience and driving history are factors insurance companies take into consideration when determining rates. If you don't have a lot of driving experience, you will likely see higher rates for insurance. If you have a long history of driving without accidents, you will likely have lower rates.
How do I renew my car insurance policy?
Renewing car insurance is actually relatively simple. It may automatically renew on the last date of the term. However, if this isn’t the case, all you have to do is contact your provider and let them know that you wish to renew your policy. You might be able to do this over the phone, online, or in person. Just be careful to notify them before your policy expires, as expired car insurance renewal can be trickier and more expensive.
Get your free car insurance quote from BrokerLink today
Now that you know that your credit score won't be affected don't hesitate to reach out to BrokerLink today for a free car insurance quote! As your local insurance brokerage, our insurance brokers can shop around on your behalf with the top insurance providers in your area to find you the best quote for your needs at the right price. We can also help answer any car insurance questions you may have, like what types of car insurance are right for you and how you can get lower insurance rates.
You can reach us by phone, email, or in person at any one of our locations throughout Canada. No matter how you choose to get in touch, a BrokerLink insurance advisor will be happy to assist you. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.
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