Does car insurance affect credit score?

Have you ever found yourself staring at a missed payment notice and wondering whether your car insurance and credit score are related? Does paying for car insurance help your credit score at all? Can missed insurance payments hurt it? In Canada, the answers aren’t as simple as yes or no. Some depend on where you live, while others depend on what you’re willing to agree to. And some depend on what the auto insurance company itself prefers to do.

Will my car insurance affect my credit?

Most of the time, the answer is no. Since your regular car insurance payments aren’t loans, they aren’t reported to credit bureaus as long as you’re making your regular payments. But that also means paying your insurance premium every month won’t help you build up your credit score.

What does not affect your credit?

You are safe to do the following without your credit being affected:

• Cancelling your policy on your own

• Switching car insurance companies

• Shopping around for quotes

• Letting a policy expire with no balance owing

So if you decide to cancel your policy, as long as you pay off whatever you still owe, your credit history will stay untouched.

Can it indirectly hurt my credit rating?

Sometimes. Insurance doesn’t help you build credit, but it can still affect your overall financial picture. Let's take a closer look:

Ways it can hurt

Your credit can hurt if:

• You miss payments and the balance goes unpaid

• Your policy is cancelled for non-payment

• The outstanding amount is sent to a collections agency

• Gaps in coverage lead to higher future premiums that make other bills harder to manage

Once a debt reaches collections, it can appear on your credit report and lower your score. At that point, the issue is not insurance itself. It’s your unpaid debt.

While car insurance doesn’t actually improve your credit score, letting it fall behind can damage it. That’s why it’s important to keep your auto insurance policy affordable and in good standing. It can help protect your credit score while you focus on rebuilding it through accounts that actually report to credit bureaus, like credit cards, loans and utilities.

If you’re struggling to keep up with payments, talk to a broker early. Payment plans and carrier options can make a difference before things escalate.

Why insurers look at credit at all

Insurers that use credit-based insurance scores say they help predict overall risk. Generally, groups with stronger credit health tend to file fewer car insurance claims.

That doesn’t mean your credit score measures your driving ability. It’s just used as a pricing input, similar to your driving record, claims history or vehicle type, where it’s allowed.

Will my credit score affect my car insurance rate?

This is where the answer changes by province. In many parts of Canada, insurers are allowed to consider credit information when setting auto insurance rates. Some places have specific legislation, while in others, it’s just not specifically prohibited. However, in Ontario and Newfoundland and Labrador, insurance companies are not allowed to use credit scores to determine car insurance rates.

What this means is that in places where credit is allowed, insurers may factor it in as part of how they assess claim risk, meaning a better credit rating often leads to lower rates. However, insurance providers aren’t required to use it and not all insurance companies choose to.

Even when it’s an option, your consent is required before any credit information is considered. On top of that, rules and underwriting practices can still differ from one insurer to the next, even within the same province. That’s why two drivers with identical details may receive very different quotes. Here's a table to visualize:

Insurance rules and insurer practices differ across provinces and between companies. If you’re unsure how something applies to you, a BrokerLink advisor or your provincial regulator can help clarify it.

Do insurance companies check your credit for insurance quotes?

Sometimes. If credit is used in your province, insurers may request access to a credit-based insurance score. But remember, insurance companies in Canada can only check your credit if you give clear permission first. When insurers check credit scores for pricing, they’re not looking at your full credit report. It’s typically a limited, credit-based score used only for insurance rating and in most cases, it’s accessed through a soft credit check, which doesn’t affect your credit score.

The Insurance Bureau of Canada (IBC) has a voluntary code that outlines how insurers should use credit information in a way that protects consumers. So if you say no to a credit check, insurance companies cannot deny or cancel your coverage. They will just price your car insurance policy without using your credit score. That may mean higher premiums, or it may mean no change at all, depending on the provider.

What actually drives your credit score in Canada?

Before we go further, it may help to clear up how credit works in Canada. Canada has two credit bureaus that track your credit information:

• Equifax

• TransUnion

These two major credit reporting agencies collect similar details about how you use credit, but they don’t always calculate scores in exactly the same way. That’s why your number can look slightly different depending on where you check it. Now let's take a look at what affects your credit score:

Payment habits

At the centre of your credit profile is whether bills are paid when they’re due. Consistent, on-time payments show reliability, whereas missed payments, especially those that end up in collections, can drag your score down fast.

Credit usage

When balances stay close to your credit limits, scoring models treat that as a sign of higher risk, even if you’re making payments on time. Using a smaller portion of your available credit tends to work in your favour because it shows you’re not banking on borrowed money from month to month.

Length of history

Accounts that have been open for years help tell a longer, steadier story about how you handle credit. When older accounts are closed, that timeline becomes shorter, which can cause a score to dip even if nothing else has changed. It’s less about how old the account is and more about how much credit history it offers.

New credit activity

Several applications for new credit accounts in a short period can lower a score because it suggests an increase in borrowing all at once. This is also where it helps to know the difference between soft and hard checks. Hard checks tied to new credit can have a small, temporary effect. Soft checks don’t.

Types of credit

Over time, having more than one type of credit can help round out your profile, simply because it shows you can manage different responsibilities at once. This factor plays a smaller role than payment history and credit usage, but it can still affect your score.

None of this has anything to do with how well you drive, but it can still influence insurance pricing where credit is allowed.

Best practices while you shop for coverage

If credit comes up while you’re shopping for car insurance, here are some tips to help you stay in control of both your rate and your credit profile. Here's what you should know:

If you have a low credit score

Some policies may look inexpensive at the start, but leave very little room for error, like a payment date that doesn’t line up with your monthly income. When that happens, missed payments and cancellations usually aren’t far behind and replacing cancelled coverage tends to cost more than what you started with. That’s why it may be best to find a policy that fits your budget and is a safer choice, even if the upfront price is slightly higher.

If you have a high credit score

When you have a good credit score, you may have options that others don’t. Some insurers will offer better pricing if credit is part of the picture. Others won’t change the rate at all. The only way to know is to ask and then compare the differences side by side. If there’s no real benefit, there’s no real reason to agree to it.

Working with a broker

One thing that can often work against people is applying for quotes everywhere at once. Different insurers look at and weigh things differently. So, without context, it can be hard to know why one quote is higher or lower than another when you try to compare. An insurance broker can help keep the process contained and help you understand which insurers even consider credit and which ones don’t. They may even be able to show you pricing with and without credit before you decide whether it’s worth agreeing to its use.

Learn more with BrokerLink

If you’re worried about how credit might affect your car insurance, you don’t have to guess. The key thing to remember is that credit only comes into play in specific situations. If you’re unsure whether any of those apply to you, that’s when a quick conversation can help.

Our licensed BrokerLink advisors work with some of the best insurers across Canada. We can help answer any questions you have, like what credit score is needed for a new car or if your credit score can help you save money on any other types of insurance coverage. You can reach us by phone, email or in person at any one of our locations throughout Canada. And if you’re in the market for car insurance, you can also take advantage of our free online quote tool, which can provide you with a competitive quote in minutes!

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