How can debt affect a consumer's credit score?

High levels of debt and missed payments can significantly lower a consumer's credit score because credit scoring models take into account various factors that reflect a consumer's creditworthiness. One of the most critical components of these models is payment history, which accounts for a significant portion of the score. When a consumer misses payments or carries high debt balances relative to their credit limits (known as credit utilization ratio), it signals to creditors that they may be at a higher risk for default.

Additionally, making late payments can lead to derogatory marks on a credit report, which can remain for several years and severely impact the credit score. Carrying a significant amount of debt can also imply that the consumer is over-leveraged, which can further diminish their score. Therefore, maintaining low levels of debt and consistently making payments on time is essential for preserving a healthy credit score.