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QUIZ! Five questions to better understand how your credit score affects your insurance premiums

TRUE OR FALSE?“There’s a direct link between your credit rating and the risk of filing a claim.”

TRUE. Without going so far as to prove a causal link, a number of studies have nonetheless shown that a person with a low credit score is more likely to file a claim than someone with a good credit history. That’s why damage insurers use credit scores as an indicator to help set insurance premiums.

TRUE OR FALSE? “I have an obligation to provide my damage insurer with information about my credit history.” 

FALSE. This is entirely up to you! You are under no obligation to provide credit information to your damage insurer. The decision you make may play in your favour or it may be to your disadvantage. If you have a clean credit history, for example, you could obtain a lower premium by providing access to your credit information. In this case, it’s a plus for you!

The goal of the insurer is to offer you a personalized premium at a rate that is competitive and, most importantly, accurately reflects the insurable risk. Insurers are required to ask for your consent before obtaining information about your credit history.

TRUE OR FALSE?“The fact that a number of insurance companies consult my credit file can lower my score.”

FALSE. Your score will not change if several insurers consult your file. 

TRUE OR FALSE?“The insurer bases premiums entirely on a client’s credit score.” 

FALSE. The credit score is just one of several criteria your insurer uses to set your premium. With car insurance, for example, the insurer will also check your driving experience, how you use your vehicle, the make and model, etc. For home insurance, things like property value, local crime rates, and the value of your possessions will be taken into account.

TRUE OR FALSE? “Damage insurers can use credit information for a variety of purposes.”

FALSE. Credit information is used by the insurer to help assess the risk of insuring each consumer as accurately as possible, based on their profile, credit history, and insurance needs. The risk assessment process varies from one insurer to another because different actuarial models can be used to set premiums. Each insurer has its own “formula” for providing the best possible premiums to its customers.

Want to learn more on this topic? Contact us! 

 

 

Author: Promutuel Assurance

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