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; causes the insured to become a high-risk driver.

What's most fascinating thing about these laws, is that in many states, they require consumers to purchase a minimum amount of automobile insurance. Many states have heavy penalties for individuals who don't carry the required 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. The states that require consumers to purchase automobile insurance, at rates set by the insurance industry, based upon a consumers credit score, usually have a state-run high-risk insurance plan for consumers with bad credit and other high-risk drivers. So if a consumer can't attain automobile insurance due to bad credit, then they would be labeled as 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.

Let's get 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 credit card delinquencies on your credit report, and you're looking at a hefty insurance rate.