Credit card debt is known by most people as one form of bad debt. It’s really the type of debt that no one should have but in an emergency. A credit card is something that gets a very high interest rate, which is one reason to avoid this type of debt. Unlike a car loan, too, you aren’t steadily paying off a credit card. Instead, you can run up more and more debt until you reach your maximum limit. Then, you can just pay it down and start all over again.
Besides this, credit cards normally have very high payments. This is because they have ridiculously high interest rates. Even if your payments are high, though, making minimum payments can often land you in debt for literally years to come. Even if your original debt isn’t that large, credit card interest rates can cause your payments to drag on for months and months on end. Eventually, you can even end up paying twice as much as you originally put on your credit card all because of compounding interest!
Another reason to avoid credit card debt, though, is that it can also cause your credit score to suffer seriously. Because this is high risk debt, the credit reporting bureaus mark it very unfavorably on your report. Having a load of credit card debt is probably the surest way to get your score down other than making none of your monthly payments on time.
The main way that credit card debt is scored isn’t necessarily, though, by how much total debt you have. You can have $10,000 of credit card balances and still have a great credit score. Mainly, the companies who make your score actually adjust it based on how much debt you have compared with how much credit you have available.
If you have $10,000 worth of debt but have a $100,000 credit limit, your score will still be really high. If you have $2,000 worth of debt and have only a $2,500 limit, your score will take a huge hit. The closer you come to maxing out your cards, the worse your credit sore suffers.
This is why the quickest way to repair your credit is to pay down credit cards. As soon as you see that your score is starting to suffer, work on getting those balances down. You’d be surprised just how quickly this can turn your score around!