Business Insurance News & Views

How can my credit score affect the cost of my home insurance

Most insurance companies in Canada & the United States find that policyholders with good credit ratings (i.e. good credit scores) have fewer and less severe claims. As a result, insurers are looking for clients with good credit ratings, and they have been rewarding them will discounts and lower premiums.

For the last few years in Ontario, most insurance companies use your credit score to determine your home insurance premium. A good credit score will help give you a cheaper home insurance premium.

One of the questions policyholders ask, is “I don’t remember giving the insurance company permission to access my credit score ? So how can they ? ”

That’s a great question. Most current home insurance application forms give your insurance company permission to access your credit score. But if you’ve had home insurance with the same insurance company for many years, it’s not clear whether or not they are using your specific credit score to determine your premium. That’s because many years ago, home insurance applications did not explicitly give insurance companies the right to access your credit score. So some insurance companies require their legacy policyholders to sign a consent form that explicitly gives them the right to access your credit score. In the case of older home insurance policies, when they don’t know your specific credit score, your home insurance company may renew your policy by assuming you have an average credit score, or they will provide a credit score based on your postal code. In cases of ‘postal code credit scoring’, insurance companies access the average credit score in your neighborhood, and your discount will depend on the credit score of you and your neighbours.

There are usually two ways your home insurance company can apply a credit score discount for a new policy holder;

  1. Provide a credit score based on your specific information. Information used is your name, address, date of birth. But why doesn’t this always work ?
    1. What if your legal name is “Anthony”, but you always go by “Tony”. Just suppose when you speak to the insurance company you tell them your name is Tony. The insurance company may not find a credit report for Tony living at your address, resulting in a higher price for your insurance. But they find a really good credit score for “Anthony” living at your address. You should let the insurance company know the official name used on your legal documents &/or the official name used with your credit card & loan companies.
    2. Just supposed you’ve recently moved, and the new address hasn’t been updated with your loan/credit card companies. Perhaps the credit bureau haven’t been notified of the new address by the credit companies, which means the insurance company won’t find a match when they try to access your credit score using your new address. You may have to provide your previous address or the address most recently associated with your credit companies to generate a credit score ‘hit’ and provide the best possible discount.

2. A generalized credit score discount depending on the area you live in. This is used when a customer doesn’t give their insurance company permission to access their credit score.

When your insurance company accesses your credit score, it’s treated differently than applying for a credit card or a loan. Each time you apply for a loan or credit card, an entry is registered on your credit history. In the case of a home insurance application in Ontario, it’s referred to as a ‘soft hit’ on your credit history. The insurance company sees your score, but the application for home insurance isn’t registered with the credit bureau and doesn’t have an impact on your credit score or credit history.

Most people want to pay the lowest price possible for their insurance. But some people aren’t comfortable with insurance companies using their credit score – we’ve had discussions with many policyholders who are offended by the topic, and feel it’s an invasion of their privacy.

We recommend consumer exercise caution when consenting to the use of their credit score to calculate their home insurance premiums. Ask your insurance broker to check your premium with and without the credit score discount. If you’ve got a good credit score you’ll likely receive a lower rate. If you’ve got a bad credit score, your rate will likely increase.

For a quote on your home insurance, pleaseĀ Click Here . During the quoting process, you should see an option that allows you to give permission for your credit score to be used in the quoting process.

In our next blog, we’ll give some specific examples of how a good, average, bad, and neighborhood credit score can affect your premiums.