Credit Cards - How They Affect your Insurance Rates

by : Bryan Pringle, Ph.d.

How do affect your insurance rates? The idea sounds absolutely preposterous; doesn't it? Even the thought that having too much credit card debt, or possibly paying your credit card bill late, or even becoming delinquent on your credit card bill, could affect your insurance rate is just too far fetched; right? Wrong!

What many consumers don't know is that in many states, insurance companies have lobbied, and won the right from the legislature, to gain access to your credit report. Laws have been passed that allow insurance companies to check your credit to determine your insurance premium rates, or even deny coverage based upon your credit rating.

Supposedly, the argument by insurance companies has been, that if a consumer pays their bills late, or is delinquent on their bills, or is irresponsible in accumulating too much debt, then the consumer is obviously irresponsible in all aspects of life. This would supposedly include, driving irresponsibly and paying insurance bills late. This in turn; as they argue; would make the insured a high-risk driver.

What's most interesting about these laws, is that many states require consumers to have a minimum amount of liability coverage on their automobiles. Many states can impound your vehicle, issue hefty fines, or even jail offenders who refuse to pay for mandatory automobile insurance.

Okay, so what if you have such a bad credit score, that you can't get automobile insurance? Hmm...that's a good question. In the states that force consumers to buy automobile insurance at rates that are determined by the insurance industry, based upon your credit rating, there are usually special state-run insurance programs that are for high-risk drivers and consumers that have bad credit score. So if a consumer can't get automobile insurance because of a bad credit score, then they would be grouped along with high-risk drivers.

What is a high-risk driver? A high-risk driver, is someone who has been convicted of driving while intoxicated, driving under the influence, vehicular manslaughter, drug possession, or it could just be anyone who has an excessive amount of traffic tickets or numerous accidents on their driving record.

Now back to the initial question: "How do credit cards affect your insurance rates?" Answer: Too much credit card debt, too many late credit card payments, and any delinquencies on your credit report, and you're looking at a hefty insurance rate.