How Does Debt Affect Credit Score?

The primary purpose of your credit report is to accurately reflect how responsible you are with managing your debts. This level of responsibility is measured by your credit score. Current and past debts are taken into consideration when your credit score is calculated.

Types

Two types of debt will appear on your credit report: installment debt and revolving debt. Having both types of debt reflected on your report increases your credit score.

Time Frame

The older a debt is, the less impact is has on your score.

Payment History

Your payment history on your debts accounts for 35 percent of your credit score and has a higher impact than any other factor.

Debt to Limit Ratio

Your debt to limit ratio is the proportion of what you owe to your spending limit on revolving debts such as credit cards. The less you owe, the better your score will be.

New Debts

Shopping around for new debt can decrease your credit score slightly by causing credit inquiries.

Unpaid Debt

Unpaid debts that appear as delinquencies, charge offs and collection accounts will damage your credit score substantially.

References

• What's in Your FICO Score?

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