Does Credit Card Debt Affect Credit?

Understanding credit

When people talk about their credit, what they actually mean is their credit rating.
A consumer's credit rating is an estimate of the creditworthiness of an individual, that is, her ability and willfulness to pay back her debtors.
If you've got a credit card and you've got an outstanding balance on that card, you can expect it to affect your credit. Actually even a credit card without an outstanding balance can still affect your credit.

Payment history

Lending institutions use a complex formula of ratios to determine your creditworthiness.
For instance, while paying your bills on time is the best way to maintain good credit, if your debt surpasses a certain amount (typically 25%) of your income each month, your credit score may go down.
Credit card debt plays a major role because it is the primary way that credit bureaus track your payment history, which is by far the biggest factor that lenders use in making a decision on whether to let you borrow.
If you've missed payments and burdened yourself with multiple cards, lenders may consider you too risky to extend credit to, and your credit score will go down.
To raise your scores, the practical thing to do is to pay off your debts, starting with the smallest amount first, until you have eliminated your credit card loans. The process will establish a favorable payment history and raise your credit score.

Debt management

When most consumers think of debt, they usually think of it as bad, but that is not necessarily so with financial institutions. Sound investments, which usually cost borrowers tremendous debt, can be considered good debt. If you're paying for a mortgage, for example, then the amount you owe can be considered good debt.
To put it another way, banks and lending institutions usually won't hold it against you for paying for a roof over your head, especially if you're making the payments on time.
Also, homes around the United States, at least historically, tend to appreciate in value--rapidly in some places. So lenders look favorably upon homeowners when it comes to extending credit.
But homes and large investments are best not charged to a credit card, but through a processed loan. Consumers who pay for items that don't appreciate are usually creating bad debt (but if you pay it off before interest kicks in it is considered good practice).
Bad debt is everywhere: electronics, automobiles, and clothes, to name a few. If you pay for these items with your credit card, then make sure you pay the balance off every month.
Even if you have credit cards with no debt you still can be considered risk-averse to lenders and your credit will go down.
Open and stagnant credit card accounts are not considered good debt management to the credit bureaus, who use such information when calculating your credit score.