Everyone should be aware of the fact that your credit rating and credit score can impact your ability to finance a new home or car and affect your ability to get a decent annual percentage rate on a credit card, but few realize that the impact of your credit affects much more than just new purchases. About ten years ago, your financial history and ability to pay your bills on time began affecting your homeowners insurance. For those with bad credit this probably was not much of an issue, as most people with bad credit do not own their own home. But more and more car insurance companies are now taking your credit history into account when writing your insurance policy.

This is a pretty controversial subject, and for good reason. You purchase and maintain car insurance to be a responsible driver and protect yourself from financial loss. In a troubling economy like we have been experiencing the last few years, more and more people find themselves in situations where they must prioritize their bills each month. More than a few of us have defaulted on student loans and credit card bills to pay for our homes and vehicles, as well as insurance on these important aspects of our lives. One would think that prioritizing your insurance at the top of the list of your bills would ensure you have insurance, but that may not be the case. Some insurance companies are actually dropping clients that have paid regularly because they have dropped the ball on other bills, thus lowering their credit rating and credit score. Even companies that are not dropping their clients may still be capitalizing on others misfortune by making rates skyrocket as a response to your dropping credit score.

The laws and regulations that govern insurance companies are not federally set. Instead, each state has its own laws dealing with insurance companies and what information they are permitted to use when determining your policy premiums.

Your insurance company has a complex mathematical procedure they even they likely cannot explain to you, but it takes into account many factors including your age, gender, marital status, children, the type of car you drive, where you live, your driving record and often your credit score. This process assigns you a risk level to the insurance company, often based on their past experiences as a weighting measure. Your risk factor determines your premium amounts, a higher risk equaling a higher premium rate.

Unfortunately, there is not much you can do about this whole process other than doing your best to stay on top of your debt. Should you find yourself in a situation where your financial situation changes and you are at risk for not being to pay your bills you should seriously considering scaling back wherever possible rather than accumulating more debt. Most states require the insurance companies to tell you what factors go into determining your rate, so calling around and finding a company that does not use credit in their determinations may be a viable option of protecting yourself as well.