Does credit card debt increase car insurance rates?

Credit card debt increases your car insurance rates considerably. Car insurance rates for drivers with poor credit are $430.91/mo in the US.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Oct 1, 2020

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Here's what you need to know...

  • Your credit card debt can affect your insurance rates as debt often indicates that you are not as responsible
  • The best way to lower your insurance premium if you have debt is by paying your debt down
  • You can also find discounts with your insurance company that may reduce the cost of your premium

Unfortunately, having debt on your credit cards can negatively affect how much you pay for car insurance. Car insurance companies use a lot of tools to determine their risk when making car insurance coverage available to you.

If you have debt that is unpaid or relatively high, it is sometimes a warning that you cannot organize or handle your finances.

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One of the reasons that car insurance companies charge you more if you have substantial credit card debt is because drivers with debt tend to be in more accidents and file more claims.

They also tend to pay late, have premature coverage cancellations, and have insufficient funds.

These all cost the insurance company more  — a risk that they pass on to you. Fortunately, there are ways that you can improve your credit and lower your rates.

How does credit card debt affect the type of car you drive?

One thing that keeps your insurance premiums lower is the type of vehicle that you drive. Insurance companies look not only at your driving record when determining your rate, but also at your car and how well it is maintained.

If you have high credit card debt, insurance companies may assume that you can only afford to drive and own an older car.

Older cars often do not have the same safety features as new cars, such as side airbags, rollover protection, and sophisticated safety technologies.

If you are in an accident, the injuries to you and your passengers will probably be more serious, which, in turn, increases medical costs.

If you have high debt, you also may not be able to keep up with scheduled maintenance and may put off repairs until you can afford them.

Delaying maintenance and repairs means your car will not be as safe on the road and the incidence of being in an accident increases which costs the insurance company more money.

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How can you lower your debt?

One of the best ways to decrease your insurance rates is to pay down your debt and increase your credit. The way to decrease your credit card debt is to pay cash for purchases whenever you can.

Only use your credit card for emergencies.

You can slowly chip away at credit card debt by paying more of your bill every month. If you are only paying the minimum every month, do whatever you can to increase the amount you pay.

For some, paying more on your debt may mean cutting things out of your budget, such as daily coffee runs, going out to eat, or buying new clothes.

It may be tough, but it will also be worth it in the end.

If you do owe money and are unable to pay, make sure you communicate with the companies you owe.

Sometimes they will be able to work with you by changing the bill’s due date or decreasing the amount due each month.

Working with your creditor will keep the company from using a collection agency, which is a negative mark on your credit.

What other ways can you decrease your insurance rates?

If you start working on chipping away at your credit card debt, you are taking a good first step in decreasing your car insurance rates.

The good news is that your credit score and credit card debt are not the only factors that insurance companies use when determining what to charge you for your car insurance.

Maintaining a good driving record will also help lower the cost of insurance. If you do not currently have a good record, over time it will not affect your rates as much.

Right now you can start by being more careful on the road.

If you feel you are not a good driver, you can take a safety driving or defensive driving course to help improve your skills.

A bonus for taking a defensive driving course is that many insurance companies will give you a discount off of your premium for completing the course.

Other ways to save money on your car insurance rates are in the forms of discounts.

Discounts exist for a number of different situations, such as if you insure multiple cars or multiple policies with the same company.

Other companies give you loyalty discounts. So even if you have poor credit, you may save money over time if you stay with one insurance company.

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