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Why Does Your Credit Score Matter for a Property Policy

Why is Your Credit Score Reviewed for a Property Policy?

Did you know that in order to apply for a property policy in Ontario, your credit may be taken into consideration? This became an industry-wide strategy in 2010, when the Insurance Brokers of Canada Board of Directors approved the Code of Conduct for Insurers’ Use of Credit Information (or CODE for short). This means that insurance companies are held to a set of guidelines in order to access one’s credit for insurance rating. In Ontario, this only applies to personal property insurance; there is no need for a credit check for any other kind of policy (at the moment).

Let’s explore some facts and frequently asked questions about why your credit score matters when it comes to applying for a property insurance policy, and how it may be affected.

  1. How does this affect my credit?

Good news: it doesn’t! The system pulls what is called a ‘soft hit’ on your credit. This means that it simply gains access to your score, but not the rest of your credit bureau information. This is opposed to a ‘hard hit’, which is the verification of your credit score for a product that actually reports to your credit bureau, which in turn causes your score to fluctuate (such as a mortgage or credit card). Because of the ‘soft hit’, your insurance policies also don’t report to your credit bureau.

  1. Who sees my credit information?

No one. The information is pulled and applied to your application in the background of the system. Your score is never seen by your broker or the insurance company.

  1. Does my credit score affect my premiums?

Yes, it can. Your score will help determine whether you’re eligible for a discount on your property insurance policy. If your credit score is on the lower side, discounts may not apply, however if it’s excellent, you may see some savings. Ultimately, the lower the score, the higher the premium, and vice versa.

  1. Lower credit scores sometimes means higher potential for claims

Statistically speaking, those with a lower credit score have been known to submit more property claims than those with an excellent credit score. The insurance company takes this into consideration when determining whether they want to take your property on as a risk.

  1. Only your current credit information is used

If your credit score was once on the lower side, but has improved over the years, you will not be penalized for this. The system can only access your up-to-date credit score to use in respect to your application.

  1. Only accurate credit information is used

Did you know that you have the right to dispute any incorrect information on your credit bureau file? It’s true. If a discrepancy is found, you can choose to dispute it with either (or both) of the two credit bureaus in Canada, TransUnion and Equifax. Once a resolution is found and your credit bureau file and score are corrected, you can request that they provide the updated information to your insurer, who must then review and adjust your policy accordingly.

  1. Your credit score cannot be accessed without your consent

Whether verbal or written, we, as your insurance broker, must always get your permission to place a soft hit on your credit to complete your application. A transparent explanation will always be provided so that a potential insured knows exactly what accessing their credit score entails. Also, no one can ever provide consent on your behalf. It can only come from the person or persons purchasing the insurance policy.

If you have any questions about credit consent and the use of your credit score for insurance policy purposes, please contact our office and we’d be happy to help you out (keep in mind, however, that we are not licensed credit counselors).

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