Can credit card debt increase my car insurance rates?

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In a nutshell...
  • A good driving record and a good credit history are the fastest lanes on the road to low auto insurance rates
  • Most car insurance companies will check an applicant’s credit history as part of the rate approval process
  • High credit card debt can lower a person’s insurance score

Car insurance companies look at many factors to determine an individual’s car insurance rates.

Factors such as age, driving record and the type of vehicle insured are all apparent influences on your premiums, but your credit score is one area that many drivers do not know is used to determine car insurance rates.

A person’s credit history will be used by the auto insurer to create an insurance score, and this score can have a significant influence on the cost of car insurance.

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What is my credit history?

A person’s credit history is a list of past and current loans, bills, and instances of extended credit.

Some of the items on a credit report that are reported include:

  • Credit card bills
  • Home and auto loans
  • Bill payment histories
  • Bankruptcies
  • Civil judgments

For traditional lenders, this history is used to determine how trustworthy an individual is when it comes to paying bills and financial obligations but for car insurance companies it is also a predictor of how likely you are to file a future claim.

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What is an insurance score?

An insurance company will use an applicant’s credit history to create an insurance score for that individual.

This insurance score helps to determine how likely the applicant is to get into an accident or file a future claim.

Based on statistics, car insurance companies have found that those who have a poor credit history are more likely to be involved in an auto accident and file a claim this raising the risk level to insure people with poor credit profiles.

Drivers with proper credit typically tend to file lesser claims.

This may be due to the more economical alternative they have for vehicle repair or some other reasons.

Think of it this way – if you have a $1,000 damage to the car and can afford $1,000 to pay for repairs, then odds are you might not file a claim to avoid higher car insurance rates.

All insurance company premiums are based on risk model pricing and the higher risk a driver poses to file a future a claim the higher premiums will be.

Using your credit score as a factor is not a judgment on you but just an unfortunate part of the reality of risk statistics show.

How does credit card debt affect car insurance rates?

A person, who has used a significant portion of their credit from a credit card company, shows that they may not be handling their finances in the best way. It could be evidence that the person is not living within his or her financial means.

Credit cards are best used as a means to pay for emergency expenses and not intended to carry large amounts of debt on an ongoing basis.

It appears to financiers and insurance companies that the individual is spending more money than he or she is paying for the monthly payment.

High credit card debt creates a poor credit history; the poor credit history creates a low insurance score. A little insurance score means higher auto insurance rates for drivers with top credit card debt.

How can my auto insurance rates be improved?

To lower auto insurance rates due to poor credit history, will require a change in spending and paying habits.

For starters, you will need to get a copy of your credit report from all three of the major credit reporting bureaus to see exactly what items are on your credit history.

Follow the processes provided by the credit reporting bureaus to remove credit information that is inaccurate or a result of identity theft.

Bills and judgments show that you are not financially responsible; this indicates that you are also likely not a responsible driver.

Paying these bills and judgments will show that you are accountable for your finances and your driving record.

Begin to pay all loans and monthly bills on time; this mainly pertains to credit card bills. If you are able, pay off as much of your outstanding debt as possible with your credit cards.

If needed, change your driving habits as well so that you are a more responsible driver. Multiple crashes and auto insurance claims will raise your insurance rates quicker than any poor credit history.

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