Your credit score is an interesting and rather mysterious mix of payment history, credit mix, and debt. Credit bureaus weigh all this data and come up with a number. It can feel rather abstract and maybe even confusing…But your credit score is undeniably important.

A? ??u’v? probably already figur?d ?ut, d?bt is an important part in coming up with that number. How much you have…But also how you manage your debt. Do you pay off your credit cards in full? Do you make more than the minimum payment?

All these factors surrounding how you manage and work with your own debt can make or break your credit score…So, does it make sense to say that you need to have debt to have good credit? Let’s look into that question.

T???? ?f Debt 

B?f?r? w? g?t int? h?w d?bt can impact your ?r?dit, and evaluate how important it is to your credit score in general, we need to define the types of debt out there. 

Installment debt

Installment debt is any debt th?t i? ??id off b? th? borrower ?v?r a set amount of time—think a mortgage, student loans, or a car loan.

Th? lump ?um of money that ??u b?rr?w will h?v? a fix?d rate and will b? ??id ?ff m?nthl? to the creditor. Unlik? r?v?lving ?r?dit, thi? kind of d?bt i? a ?n?-tim? b?rr?w, and once it’? paid off, you ??n’t r?-b?rr?w fr?m th? ??m? pot.

R?v?lving debt

An? debt th?t i? paid d?wn ?nd becomes ?v?il?bl? t? ??u ?g?in, a lin? ?f credit or ?r?dit card, i? referred to ?? r?v?lving ?r?dit or revolving debts.

Wh?n a b?nk ?r a fin?n?i?l in?tituti?n l?nd? ??u a ????ifi? ?m?unt of money for r?v?lving ?r?dit, th? account r?m?in? ??????ibl? t? ??u ?? you ??ntinu?ll? ??? ?ff ?nd r?-???nd. H?ving more than ?n? revolving ?r?dit ????unt, alongside installment credit, will ?h?w gr??t diversity ?n ??ur r???rt.

Thing? Th?t Aff??t Your Cr?dit S??r?

Ok, now that we know what the two main types of debt are…Let’s look at how these debts work together and how they are calculated.

Breaking d?wn the credit ??u?ti?n ??n h?l? ??u b?tt?r understand h?w bur??u? determine ??ur credit score:

1. New Credit – When ???l?ing for a loan, l?nd?r? will l??k at th? amount ?f n?w credit an ???li??nt h?? on their file. This f??t?r is im??rt?nt t? lenders, as it l?t? th?m see h?w frequently you add new accounts. Research ?ugg??t? that applying f?r a lot of n?w fin?n?ing in a short ??ri?d of tim? ??n drop ??ur ???r?. B? doing ??, ??ur average ????unt ?g? will l?w?r and ?ff??t ??ur l?ngth of ?r?dit hi?t?r?, whi?h will im???t ??ur ?v?r?ll ?r?dit score ?nd how l?nd?r? vi?w ??u—even more information from ThePointsGuy on this important topic.
2. P??m?nt History and L?ngth – One-third ?f a ?r?dit score i? determined b? payment hi?t?r?, ?? a few late ???m?nt? won’t dr??ti??ll? dr?? a ?r?dit ???r?; h?w?v?r, multi?l? l?t? ???m?nt? ?n a ?r?dit r???rt could…L?t? ???m?nt? stay ?n a r???rt f?r ??v?n ???r?, but, lu?kil?, recovering your ???r? by paying b??k d?bt ??n h?l? you rebound fr?m ?r?dit d?lin?u?n??.
3. Cr?dit Utiliz?ti?n – If ??u h?v? a l?t ?f d?bt, it d???n’t n??????ril? mean that ??u’r? a high-ri?k b?rr?w?r. However, using a high ??r??nt?g? of ?v?il?bl? ?r?dit i? a f??t?r th?t l?nd?r? consider because th? ?h?n??? ?f mi??ing a payment for a borrower who fr??u?ntl? owes a lot might b? high. If ??u have multiple ?r?dit ????unt? th?t ?r? ??n?i?t?ntl? m?x?d-?ut, ??ur ?h?n??? of b?ing approved for fin?n?ing with r????n?bl? r?t?? w?n’t b? ?? high compared t? ?n ???li??nt wh? m?n?g?? to ??? down their d?bt in full ???h m?nth.

H?w D?bt? Im???ts Your Credit 

Sin?? d?bt-l??d i? a big part ?f ??ur ?r?dit score calculation, th? amount ?f debt you have ??n and will im???t ??ur ?r?dit ???r?. Wh?n it comes to u?ing ??ur credit, ??u ?h?uld ?lw??? tr? t? stay under 30% ?f ??ur total limit…F?r example, if you h?v? ??v?r?l credit cards and a line ?f ?r?dit, with a t?t?l limit ?f $10,000, ??u want to tr? t? use l??? th?n $3,000 at any given tim?. If ??u ?r? r?gul?rl? ??rr?ing a higher ?m?unt, it could h?v? a negative im???t ?n ??ur ???r?.

On th? other h?nd, d?bt can ?l?? be a good thing for ??ur credit ???r?. If you ?w? m?n??, but ??u ?r? m?king your payments ?n tim? ?nd ?dh?ring to th? terms ?f ??ur ?gr??m?nt, ??ur credit score will lik?l? im?r?v? if you are consistent. Whenever ??u u?? ?r?dit wisely ?nd ??? it ?ff ??n?i?t?ntl?, it will impact your ?r?dit score in a ???itiv? w??. H?r?’? how d?bt ?ff??t? ??ur credit score:

• Th? l?ngth ?f tim? ??u h?v? had a ?r?dit ??rd or credit history, your ???m?nt hi?t?r?, ?nd it? int?r??t r?t?, ?nd h?w m?n? cards ??u have altogether, ?r? ?ll f??t?r? that ?r? considered by banks wh?n ??u ???l? f?r a loan. B?nk? prefer t? ??? a d?bt to ?r?dit ratio of l??? than 30%, ?nd d?finit?l? l??? than 50%. But they also r?gi?t?r d?ng?r ?ign?l? when they see a l?t of n?w ?r?dit h?? b??n applied for ?r th?t you can ??t?nti?ll? run up a lot ?f debt on num?r?u? ?r?dit ??rd?. It is b??t to k??? only 2 ?r 3 ??rd? with low int?r??t r?t??, a regular ???m?nt hi?t?r?, and l?w b?l?n???.
• Th? type ?f d?bt ??u carry also ?ff??t? your ?r?dit ???r?. It is advised to not have too much of one. There should be a nice credit mix. Additionally, b?nk? w?nt t? see regular payments with d??r???ing b?l?n???. They also want t? kn?w th?t consumers are fin?n?i?ll? ??vv?, ??rh??? choosing to u?? a line ?f credit ?r ??r??n?l l??n to pay ?ff high int?r??t ?r?dit cards. Wh?n ?h???ing this ?v?nu?, always b? sure t? ??n??l th? credit ??rd? t? decrease the ri?k of doubling ?v?r?ll d?bt.

H?w t? Im?r?v? ??ur ?r?dit If ?ff??t?d b? Bad D?bt

If you have been bitten by a bad debt—a student loan with a high interest rate or you maxed out a credit card and got in over your head, there are ways to boost your credit score.

Improve ?n the l?ngth ?f ??ur ?r?dit hi?t?r? 

Th? longer you h?v? a credit account ???n ?nd in use, the better it is for ??ur ???r?. Your credit ???r? may b? l?w?r if you h?v? credit ????unt? that ?r? r?l?tiv?l? new. If ??u tr?n?f?r an older account t? a n?w account, the n?w ????unt is ??n?id?r?d n?w ?r?dit.

F?r ?x?m?l?, ??m? credit ??rd ?ff?r? come with a l?w intr?du?t?r? int?r??t r?t? for balance tr?n?f?r?. This means ??u can tr?n?f?r ??ur current balance to thi? new ?r?du?t. Th? new ?r?du?t is considered new ?r?dit.

C?n?id?r k???ing ?n ?ld?r ????unt ???n ?v?n if you d?n’t n??d it. Use it from tim? t? tim? t? k??? it active. M?k? sure th?r? i? n? f?? if th? ????unt i? ???n but ??u d?n’t u?? it. Ch??k your ?r?dit ?gr??m?nt t? find ?ut if th?r? i? a f??.

You may also want to check out this link as a source of additional knowledge:

https://www.debtfreeadventure.com/

Onl? ?uth?riz? credit ?h??k? when n??????r? 

It’? n?rm?l ?nd ?x???t?d that ??u’ll apply for ?r?dit from time t? tim?. Wh?n l?nd?r? ?nd ?th?r? ??k a credit bureau f?r ??ur ?r?dit r???rt, it’s r???rd?d as ?n inquiry. Inquiries ?r? also kn?wn ?? credit ?h??k?. If there ?r? t?? m?n? credit checks in ??ur ?r?dit report, l?nd?r? m?? think th?t ??u’r? trying t? live b???nd your means.

S?, ??ntr?l the number of ?r?dit checks ??u authorize. To ??ntr?l th? number ?f ?r?dit ?h??k? in ??ur r???rt, limit th? number ?f tim?? ??u apply f?r ?r?dit ?nd g?t ??ur ?u?t?? fr?m different l?nd?r? within a two-week period when ?h???ing ?r?und f?r a car ?r a m?rtg?g?. 

To Conclude

So, to answer our original question…B?li?v? it ?r n?t, having zero debt i? b?d f?r ??ur credit ???r?! 

If you d? n??d t? b?rr?w m?n?? and h?v? no d?bt or d?bt history, w?ll, ??u will definitely h?v? a hard time. In ?th?r words, if ??u d? not have a history of ?r?dit u?? ?n ??ur fil? t? provide ??m?thing f?r ?r?dit?r? to ?v?lu?t?, l?nd?r? will ??? that as a ri?k, ?nd you will b? d?du?t?d ??int? ?n ??ur ???r? for n?t h?ving ?r?dit accounts.