How Debt Affects Your Credit Score


Last Updated: January 2nd, 2023

Credit card debt typically has a higher interest rate than automobile, or home loans, so racking up this kind of debt can cause serious financial strain. ReadyForZero teaches that to maintain a good credit-to-debt ratio, one should never use more than 30% of their total available credit on one credit card. There are a lot of factors that can hurt one's credit score, like missing and late debt payments. How much owed on an account, and how many accounts have balances is also negatively impactful.

Credit Score Basics

Starting with the basics, a credit score is a 3-digit number determined from one's credit history. It has the power to determine the financial eligibility of taking out a mortgage or loan. Credit scores also determine how low an interest rate credit holders can receive on desired loans. The higher a credit score, the lower interest rates one can typically qualify for.Average Credit Card APR

Credit scores typically range from 300 - 850, and according to Wells Fargo, are determined by the following:

  • 35% based on payment history
  • 30% is based on current debts
  • 15% is determined by credit history
  • 10% is allotted to new credit applications
  • 10% is about types of current credit
Credit Card Debt and Credit Scores

Having high credit card debt lowers a credit score, prevents one from getting loans, and restricts new credit cards approvals. But how does the debt-to-income ratio come into play? AboutCredit explains that, "Even if your debt-to-income ratio is low, if your debt hurts your credit score, you could still be denied." The article also notes that income is not a factor in determining credit score.

Higher credit card balances in relation to unique credit limits can kill a credit score. Thus, it is best to keep that relationship deeply in check.

Maxing out a credit card is a sure way to decrease a credit score, fast.

Credit Scores on

Average Credit Scores of People in Debt


We surveyed over 200 people on to see what credit scores our visitors have. Typically, our visitors come to our website to find companies to help them out of debt, so we can assume these credit scores have been affected by debt (almost half of our visitors have over $25k of debt).

Based on these numbers - 71% of the people we survey do have a credit score below 690 (690 is considered the lowest "good" credit score you can have).

Only 6% of people don't know their credit score, which leads us to believe that those who are in debt are monitoring and are concerned about their credit score.

Debt Reported To Collections

Accounts that are reported to collections can also suffer in credit score. CreditKarma states, "The degree to which a collection hurts your credit score is generally correlated with how high your credit score is when the collection agency reports the debt. The higher your score, the more points you can lose." Medical debt is often reported to collections.

How much debt one owes to collections is an important factor to consider. Minor amounts will not do as much damage. CreditKarma gives the example that if "the original debt you owed was less than $100, the resulting account in collections may show up on your credit report but it may not significantly hurt your credit score or even hurt it at all."

If possible, it is always better to prevent these kinds of situations before they start, so one can keep their credit score at a decent level.

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