Your Credit score is very important. The best way to maintain a good credit score is to keep the amount of debt that you already have in a position of control. By having control you should be able to manage your payments rather easily. If something unexpected happened such as a decrease of income, rise in interest rate, or acquisition of another bill such as a medical expense, you would still be in a position to manage what’s already part of your budget. If you can’t manage them easily and are struggling to pay the minimums already, it usually makes more sense to eliminate the debt as quickly as possible. Remember, if you’re just paying minimum payments, they are structured to keep you paying for a long time. That’s how the banks make money, by keeping you as a revolving debt.

In addition to you paying your monthly minimum payments and the corresponding interest, the banks are able to go to the Fed and borrow against your debt. Current paying customers on credit card debts are considered an asset to the bank enabling them to borrow up to ten times the amount of debt on individual accounts. It’s a process called fractionalization. The banks are making money off of you in more ways than one and that’s a big reason why they accept so little as a minimum payment. By paying that minimum payment, you’ll always be considered current and will remain in good standing because you’re a cash-cow for them. The problem for us though is this; by paying back just the minimum payment, which has typically been just over 2% of the balance though recently increasing to 5% with many institutions (triggered by Congress recently passing the new consumer-protecting credit card bill taking effect in 2010), your balance will steadily increase over time until the payments are unmanageable and the balance has grown out of sight. It’s very misleading to customers because the banks lead you to believe that paying that minimum is the right thing to do when it’s actually just the accepted thing to do.That’s how so many people start on a that never ending credit treadmill, and all it takes is one unexpected circumstance to throw you off track. That’s why it is imperative to be able to pay much more than your minimums comfortably.

Also, you have to really understand what a credit score is and what it does for you. A credit score is something that gives you the ability to acquire more credit, meaning that you are essentially enabling yourself to get into more debt. As long as you’re paying your minimum payment to your creditors, you’ll usually sustain that ability. It just might be the worst thing for you though if you don’t realize that you’re just stacking more and more debt. It happens to a lot of people because they’re led to believe they are in good standing because the bank statement reflects that they are. They just keep stacking more debt until it finally crumbles on them. Of course, that is an individual's responsibility to avoid that scenario, but it doesn’t help that the banks have been tempting people by lending out so much credit.

A credit score is reflected upon a few key factors. Payment history and the debt-to-credit ratio take up the bulk of it. Payment history reflects only the past two years. The debt-to-credit portion of a credit score is reflected by the amounts that are owed versus the amount of credit available, but can be poorly reflected if the balances exceed 50% of the credit-line.

The higher the balance, the worse it could be reflected. When debt is eliminated, it will show on a credit report as having been paid off resulting in an increase of a credit score.

Establishing and maintaining payment history can be done by paying any bill on time that is reported on a credit report. Utility bills, auto loans, installment loans, and even secured credit cards can help to maintain the payment history portion of a credit score if they’re being reported. This can be done throughout the duration of any debt resolution program out there, which will result in a less negative impact to one's credit. A credit report only shows the past two years of payment history so it's basically a snap-shot in time.

Oustanding debt in dollars will always be shown as long as there is a balance carried. Charge-off accounts that end up in debt buyers' hands can even be duplicated as another negative and double the amount owed until one of the reporting creditors is paid. Once paid off, the negative with the other owner of the debt can easily be disputed directly with the credit bureaus in which that item would be removed permanently.

If you’re already in a position in which your outstanding debt is extremely high, and even if you’re maintaining the minimum payment required, you really should look to eliminate your debt through some type of debt settlement or negotiation process. Once you’re at the point of making minimum payments and seeing no significant decrease in your balance, it’s time to explore those options.