When you buy insurance you are asked a ton of questions. Some make sense, like your address. Others can be a bit more confusing. Ever wonder why insurers ask permission to do a soft credit score check? Here’s the low down on why, and why you should say yes.
Insurance is always based on claims history. Not just your history, but everyone’s history. Insurance companies have departments of actuaries that look at that claims history, and forecast the future of claims. One of the things that actuaries have noticed is that clients with a higher credit score rating make fewer claims.
It makes sense, as people with better credit are more likely to have the funds to complete any necessary updates on a home. They are also less likely to commit insurance fraud because of money issues.
The insurance industry took this information and reflected in their rates. Clients who have a higher credit score are now eligible for a lower insurance rate.
A few things to remember about insurance and your credit score
Your credit will not be affected – The check is always a soft hit. This means your credit score will not be affected.
Confidential – Your broker can’t see your score. Computers do the work, and add any applicable discount. Your credit information is secure.
Qualification – You will not be penalized. If your credit score isn’t great your premiums won’t increase, they’ll just stay the same. Your policy will never be cancelled due to a low credit score either.
What is the difference between a hard credit check and a soft credit check? Financial institutions use your credit score for things like credit card, mortgage or loan applications. This is known as a Hard Credit inquiry and will impact your individual credit score. When a credit score is asked for insurance, employment or landlord checks, this is known as a Soft Credit inquiry and will never have an impact on your individual credit score no matter how many times a check is done.
The two main credit agencies in Canada are TransUnion and Equifax. These agencies my be contacted if you have questions regarding your credit score. If you’re ever concerned about a Credit Check that is being completed by an insurance company, visit the Insurance Bureau of Canada for more details.
Some of our markets have credit discounts that reduce your insurance by more than 20%, so we recommend that you say ‘YES’ to the credit check. We want to get you the best rates possible, and this is a great way to do that!