Credit card debt affects your credit rating in a variety of ways. In general, irresponsible use of credit cards will negatively impact your credit scores. The direct effects of credit card use are broken down into a variety of more specific categories used to compute your credit score. The FICO scoring model, used by all three major credit reporting bureaus, has five basic scoring areas, according to the MyFICO website.
Credit Scores
Equifax, Experian and TransUnion are the reporting agencies that lenders use for individual score reporting. Credit scores are used by lenders to gauge the creditworthiness of borrowers seeking new loans and favorable credit terms. Your credit history and length of credit history, amounts owed, new credit and types of credit are all used to compute your score. Credit card use has possible implications for each of these areas of your score.
History Effects
For many people, credit cards are a major element of establishing a consistent payment history and length of credit history. Carrying cards for several years and making on-time payments consistently over that period strengthen your credit rating. These two components account for 50 percent of your credit score, the MyFICO website reports. One of the worst things you can do to your credit rating is to make late payments on your cards.
Amounts Owed
The amounts owed section of your credit score includes several items that ultimately depict a comparison of your credit in use to your available credit. This is known as your debt utilization, and it accounts for 30 percent of your score in the FICO model. Lenders are especially concerned with the amount of available credit that you are using, because it offers insight into your intentions with new credit. If you have a high level of debt use, your new request usually appears as a desperate move to stay ahead of your debt.
New Credit and Types
The new credit category of the scoring model includes such items as new credit inquiries, recent accounts opened and the length of time since your last inquiry. Making numerous credit card applications in a short time span is not usually good for your credit score as it can take a few points off your score. The types of credit category considers your level of credit card balances relative to other types of debts, such as mortgages and car loans.
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