By John Campbell

Your combined debts are the second most important factor used by the credit bureaus to compute your credit score. Your combined debt accounts for roughly 30 percent of your overall credit score.

If you’re just getting started building a credit history you may have a difficult time even getting approved for credit. Having too few debts can actually be held against you as many creditors don’t like to grant consumers credit without seeing some kind of payment history. Your credit score will likely be very low for starters but build slowly as long as you don’t max out what few accounts you may be able to open when you’re first establishing a credit history. With installment loans, such as a car or mortgage payment, the more payments you make the more your score may rise.

How much debt you should be taking on to keep your score as high as possible is virtually impossible to determine. The credit bureaus won’t share the formulas used to calculate our scores so we may never know. It’s generally a good idea to keep your debt to credit limit ratio on your revolving credit card accounts below 30 percent. The fewer credit card accounts you have, the faster you’ll max out your accounts if you don’t watch your spending. If you max out your accounts your credit score could be lowered by as much as 70 points.

Of course, trying to extend your available credit by opening several revolving accounts in a short period of time can lower your credit score as well. You should try to open no more than two accounts a year. Simply closing excess accounts also offers no guarantee that your credit score will go back up, as your closed accounts will still be listed on your credit report.

To sum it up, having some debt helps build your credit score but you should keep your balances on your revolving credit lines as low as possible. It could take you years to build excellent credit so you’ll need a lot of patience and some decent money management skills. Think of your credit as a financial tool. Use it wisely and you’ll be rewarded with better interest rates and larger lines of credit. Use it poorly and you’ll be punished with higher interest rates and lower lines of credit.

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John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information and active link are included.