Debt Consolidation Loans May Boost Auto, Homeowners Insurance Rates |

Are you considering a debt consolidation loan? Be warned: You might have to pay more for your auto or homeowners insurance. The two might not seem to be related. But many insurance companies consider the three-digit credit scores of their clients when deciding how much they’ll have to pay for their auto or homeowners insurance. And when these clients lose their jobs, get temporarily laid off or see their work hours cut, they often have to resort to debt consolidation loans to handle the credit card debt they have little choice to but to rack up. The problem is, these loans, useful though they may be, have a negative impact on consumers’ credit scores: Their credit, or FICO, scores fall, causing insurance companies to view them as more of a risk.

An Unfair System?

Not everyone thinks that this should be the case. In fact, Mike Kreidler, the state insurance commissioner for Washington, earlier this year told a legislative panel that insurance companies should be banned from using credit scores to determine how much their customers pay for home or auto insurance. Kreidler argued that poor credit scores are no indication that customers are more likely to default on their insurance premiums. In today’s dismal economy, especially, even responsible consumers lose their jobs and have to turn to debt consolidation loans to survive. These consumers shouldn’t have to suffer because of this, Kreidler said.

The Insurers’ Point Of View

Not surprisingly, the insurance industry disagrees. Officials with insurance companies told the same legislative panel that credit scores do help them determine which customers are good or bad risks. They said that these scores are important tools that the companies need to properly set customer rates. It’s a debate not likely to be settled soon. There simply isn’t much middle ground.

What Consumers Can Do

Consumers can protect themselves from higher insurance rates by only taking out debt consolidation loans as a last resort. These loans are often necessary during financial emergencies. If you’ve been out of work for a year – not unusual in today’s economy – you’ve undoubtedly had to rely on your credit cards to cover a greater percentage of your day-to-day living expenses. A debt consolidation loan may be the only way for you to gain at least some control over these debts. Just be aware of the negatives associated with consolidating your debt. It’s a solution, yes, but not necessarily an ideal one. Be sure to research the effects that such a loan will have on your credit score as well as the interest rate and terms of the loan itself.