There’s much more to the concept of debt than just owing money to a creditor. There are different types of debt and each is ranked in order from “good” to “bad”; the ranking is partly intended to help anyone looking at your credit score understand your situation before they extend additional credit to you. Credit card debt is toward the top of the list of history on your credit report, so it’s important that you understand the basics when you’re carrying a high amount of this type.

What are the factors that impact your credit score?

Before getting to credit card debt ranking, you should know how your credit score is calculated. Your rating is comprised of five primary factors:

  1.  Payment History: Your payment track record makes up 35% of your credit rating, so making late payments or missing them entirely can be devastating to your credit score. Stay current with all bills by setting reminders or use automatic bill pay for online accounts.
  2. Total Amount Owed: The sum of all your credit card balances, car loans, mortgages and other credit accounts are included in the total amount owed – which makes up 30% of your credit score. The higher this number, the lower your score will be.
  3. Length of Credit History: Your rating tends to be lower if you’ve just opened credit cards or obtained other types of financing. The length of your credit history is just 15% of your score, but the longer you have credit accounts in good standing, the higher the number.
  4. New Credit: The amount of new credit accounts you maintain can impact your score, especially if you open quite a few in a short amount of time.
  5. Types of Credit Used: Credit bureaus consider the types of loans when calculating your credit score. They distinguish between such debt types as credit cards, car loans, mortgages and other lending arrangements.

 

How does credit card debt fit into my credit score? There are two types of debt:

  • Non-Revolving: These loans typically have a fixed payoff date and payment terms. When you complete all payments, you own the item for which you obtained the loan; car loans and mortgages are non-revolving.
  • Revolving: There is no fixed payoff date, so you can maintain a balance indefinitely (in theory). You can also continuously borrow more as long as you stay under the designated limit. Credit cards fall into this category.

In general, credit reporting agencies prefer non-revolving credit over revolving in determining your credit score. Revolving debt reduces your rating because you can keep using funds and get into financial trouble quickly. Therefore, your credit card debt ranking is a significant factor when comparing types of debt.

 

Credit Card Debt Help In San Diego

This background on credit card debt ranking should helpful if you’re trying to repair your credit, apply for new accounts or simply want a better understanding of how credit card debt works. If you have additional questions or need assistance in taking control of your debt situation, it’s wise to get professional credit card debt help in San Diego.

Daniel R. Gamez, an attorney focusing exclusively in debt settlement, is licensed to practice in all state and federal courts in California and Texas. Mr. Gamez owns and operates the Gamez Law Firm in La Jolla, CA. For more information, please contact Daniel Gamez at 858-217-5051, daniel@gamezlawfirm.com or visit gamezlawfirm.com.