Your home insurance company may be checking your credit score. Are you ok with this if it saves you money?

Fearing that her owner’s premium was too high, Karlee Roth, a nurse living in Tavistock, Ont., discussed her frustrations with her insurance agent in Stratford.

Greg Orr, an agent at Orr Insurance Brokers, said it might be possible to get a better rate if she was willing to allow her insurer, Economical, to do a “soft” credit check. Roth agreed.

“Greg said he would get me a new quote and I decided to put it all in writing,” Roth said. “He explained it thoroughly in a way I could understand, and based on good credit, it looks like I got a better deal.”

Rick Orr, the broker who runs Orr Insurance, says that about a decade ago insurance companies determined that “credit scores were a great indicator of risk. The most damaged home insurance files are those with a low credit rating. If people weren’t managing their money properly, they probably weren’t replacing the roof in a timely manner and doing other preventative maintenance. They started offering discounts based on credit scores.

When checking the customer’s credit, home insurers used a soft credit check rather than a hard check, something many homeowners were unfamiliar with. They were certainly a revelation for Roth.

“I had no idea about soft credit checks; Growing up, I was taught that if someone checked your credit, it was a mark against you when you applied for a mortgage.

It was a teachable moment. Knowing the difference between soft and hard credit checks is important for all consumers, as they will encounter these checks throughout their lives.

Most consumers who use credit understand that they have a credit score or rating, depending on various factors, such as whether they pay their bills on time and the size of their credit balance. The higher their score on a scale of 300 to 900, the better their credit risk and the more likely they are to be able to secure loans and mortgages.

Banks and other lending institutions use “rigorous” credit checks before approving mortgages to assess the risk of lending to an individual. They contact a credit bureau for a credit history and their request stays on your credit report for at least two years, visible to anyone who asks for your credit history. Too many solid checks in a short period of time can negatively affect your credit rating, as lenders may take this as a sign that you may not be able to pay your debts on time.

In contrast, a soft credit check gives the applicant less information than a hard check and does not affect your credit rating. The results of a due diligence are only available to you and the party that made the request. Landlords often do them and insurance companies use them to determine your premiums.

Unlike a hardware check, however, a software check can be performed without your permission. However, the standard home insurance application form contains a personal information section that authorizes the insurer to perform a soft credit check once the application is signed. Most insurers consider this appropriate, but, Orr said, “a few insurance companies disagreed and felt they needed informed consent, rather than expressed consent, to perform a smooth check. Only a few companies require informed consent.

Every time his company gets a new client, agents explicitly ask if they can allow an insurer to do a smooth check, and they do the same with insurance renewals. As with Roth’s account, his team also explains how a soft credit check works.

Anne-Marie Thomas, director of consumer and industry relations for the Insurance Bureau of Canada (IBC), notes that home insurers are required to follow the Code of Conduct for the Use of Credit Information by Insurers, approved in 2010, which “requires insurers to obtain informed and express consent from a customer before collecting credit information. »

“When you fill out an application for a financial product, you are entering into a contract,” Thomas said, “so you have to read everything and understand it when signing. Many brokers will go through the application with you.

Ken Whitehurst, executive director of the Consumers Council of Canada, believes this last step is crucial.

“In principle, as a consumer organization, we believe that there should always be clarity beforehand on what a consumer is agreeing to, and that it is the seller’s responsibility to ensure that he understands,” said said Whitehurst.

Orr has a number of customers who don’t want insurers to do credit checks, even if the customers have good credit.

“It’s a matter of privacy,” he said.

Fortunately, says Thomas, the IBC code doesn’t allow home insurers to deny or cancel insurance if an applicant or policyholder’s credit rating isn’t great.

“You might not get the best rate, but no company can deny you insurance willy-nilly,” Thomas said.

As for Roth, “I have good credit, so I wasn’t too worried. It made sense for me to go ahead with a soft check; since it couldn’t negatively affect my credit rating or my premium, I only saw it as a benefit.

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