How Debt Affects Your Credit Score

Your credit score and your debt are closely connected. The amount you owe, how you manage your payments, and even the types of debt you carry all play a role in that three-digit number. Understanding the relationship between your debt and your score can help you make choices that improve both over time.

What Makes Up Your Credit Score

Your credit score is calculated using five main factors. Each one carries a different weight:

• Payment history (35%) — Whether you pay on time
• Credit utilization (30%) — How much of your available credit you’re using
• Length of credit history (15%) — How long your accounts have been open
• Credit mix (10%) — The variety of credit types you have
• New credit inquiries (10%) — How often you’ve applied for credit recently

Let’s look at how your debt connects to each of these.

Payment History: The Biggest Factor

Your payment history makes up the largest chunk of your score. Lenders want to know one thing above all else: do you pay your bills on time?

Even one late payment can drop your score — and the later it is, the worse the impact. A payment that’s 30 days late hurts, but one that’s 90 days late hurts significantly more. Payments that go to collections can stay on your report for up to seven years.

The encouraging news is that your recent payment history matters more than old mistakes. If you start paying on time consistently, your score will gradually recover.

Credit Utilization: How Much You Owe vs How Much You Can Borrow

Credit utilization is the ratio of your credit card balances to your credit limits. It’s the second most important factor in your score.

Here’s how it works: if you have a credit card with a $5,000 limit and a $2,000 balance, your utilization on that card is 40%. Lenders generally like to see your utilization below 30%, and lower is better.

High utilization signals to lenders that you might be stretched thin financially. Even if you’re making all your payments on time, carrying high balances can drag your score down.

This only applies to revolving credit like credit cards and lines of credit. Installment loans like mortgages, auto loans, and student loans don’t factor into utilization the same way.

Length of Credit History

The age of your accounts matters too. A longer credit history generally helps your score because it gives lenders more data about how you handle debt.

This is one reason to think carefully before closing old credit card accounts, even ones you don’t use much. Closing an old account can shorten your average account age and reduce your total available credit — both of which can lower your score.

Credit Mix

Having different types of credit — like a credit card, a car loan, and a student loan — can give your score a small boost. It shows lenders you can handle various kinds of debt responsibly.

That said, this factor is relatively minor. You should never take on debt you don’t need just to diversify your credit mix.

New Credit Inquiries

Every time you apply for a new credit card or loan, the lender does a hard inquiry on your credit report. Each hard inquiry can lower your score by a few points.

A single inquiry won’t make a big difference, but several in a short period can add up and signal to lenders that you might be in financial trouble. The exception is rate shopping — if you’re comparing mortgage or auto loan rates within a short window (usually 14 to 45 days), multiple inquiries count as one.

How Different Types of Debt Affect Your Score

Not all debt hits your score the same way:

• Credit card debt has the biggest impact because of utilization. High balances relative to your limits will lower your score.
• Installment loans (mortgage, auto, student loans) are seen as more predictable. Making payments on time helps your score, and the balance doesn’t affect utilization.
• Medical debt used to be treated harshly, but recent changes mean paid medical collections are removed from credit reports, and unpaid medical debt under $500 is no longer reported.
• Debt in collections — regardless of type — can seriously damage your score, though newer scoring models weigh paid collections less heavily.

Practical Steps to Improve Your Score

Here’s what you can do right now:

• Pay on time, every time. Set up autopay for at least the minimum payment to avoid late marks.
• Bring your utilization down. If you can’t pay off your cards in full, aim to keep each card below 30% of its limit.
• Don’t close old accounts. Keep them open to maintain your credit history length and available credit.
• Check your credit report. Errors happen. Dispute anything that’s inaccurate.
• Limit new applications. Only apply for credit when you truly need it.

Bottom Line

Your debt affects your credit score primarily through payment history and credit utilization. Paying on time is the single most important thing you can do, followed by keeping your credit card balances low relative to your limits. Small, consistent habits add up over time — and your score will reflect that progress.