How debt affects a credit rating is something people don’t usually understand until it’s too late. There are three key ways that debt will affect your credit rating.
Late payments. If you don’t pay the minimum monthly payment on time, that’s an immediate ding to your credit rating. In the current environment that one ding can last as long as a year. So just one late payment puts a blemish on your file that takes up to a year to clear up. The simplest way to avoid this is by setting up automated payments for your debt. That doesn’t mean you don’t look at bills when they come in. It just means that in case you don’t get a chance to manually take care of a payment, at least the minimum payment will automatically be paid.
Debt utilization score. Your debt utilization score is how much total debt you have relative to your income and assets. The higher that number is between your total debt and your income, or between your total debt and the allowable amount of debt on your credit card, the worse off you’ll be in terms of the impact on your credit score.
Having different kinds of debt. The final piece is totally contradictory, because in this case, debt can actually help your credit score. A credit score also incorporates your ability to handle different types of financial obligations. If you have revolving debt, which is what credit cards are, along with fixed debt like most mortgages, having a history of accurately handling both gives your credit score a boost. So having debt is both good and bad.