The reason so many companies and individuals use credit reports as an assessment tool is because they work. And I hate to be the one to tell you, but you can expect a lot more of it in the future.
Using a broad stroke, past behavior reported on a person's credit report has been shown to be a good indicator of future behavior. Of course, if your credit report includes inaccurate information, and up to 25 percent of reports do, then anyone reviewing your report will not have a true and accurate assessment tool. For this reason, I always recommend you review all your credit reports at least once a year for errors. You are entitled to free copies of your reports annually and can access them at annualcreditreport.com. Any errors you find should be disputed with the credit bureau reporting them by following the simple instructions that come with the report.
The Fair Credit Reporting Act allows companies to buy your credit information for "legitimate business needs," which includes evaluating you for insurance risk. So, yes it is legal for your insurance company to review your credit report as part of the process of determining your rates. The legality of using credit reports for pricing decisions in noncredit situations is up to state legislation. However, I can tell you that when this issue gets examined closely, usually credit-based scoring is validated and approved.
Carrying a large amount of debt and/or being delinquent on accounts indicates you may be a high risk to insure. I recommend you put a plan in place to pay down the debt as quickly as possible. Not just because an insurance company may charge you more, but because it is in your overall best interest.
In addition to credit reporting agencies, there are a number of other consumer reporting bureaus out there. They acquire, warehouse and sell information about you to those with a permissible purpose as defined under the law. The specialty bureaus include data about your gambling, medical and prescription history, homeowners and auto insurance claims, check writing and more. Each of these 20 or so bureaus is also required to give a free copy of your report, but you have to ask for it. In my recent book " Credit Management Kit for Dummies" I list all these agencies and how to contact them.
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