Many people have the idea that having no credit card debt means they are a better credit risk than the person with extensive debt. While that may very well be true, zero debt isn’t necessarily going to net you a favorable response from a potential creditor. To better understand how credit card debt can actually improve your chances of getting credit, you have to understand how the credit report works.

A credit report is compiled by one of three major companies in the United States, all privately owned but operating under some government mandates. The report reflects the various credit opportunities you’ve had, payment history and even the number of times you’ve unsuccessfully applied for credit. That means that potential creditors have an opportunity to see how many credit cards you actively use, whether you tend to make payments on time, and whether you are constantly applying for additional credit.

While having no outstanding debt sounds like a great idea to most people, a potential creditor will have no way to gauge how promptly you are likely to meet payments – an important consideration in whether credit is extended.

By the same token, a person who has extensive credit card debt and continually applies for more credit might be turned down as potential creditors analyze the creditor’s ability to keep up with more payments.

What this means to the creditor is that there’s a balance needed to maintain an optimum credit rating, opening doors for future credit options. More important than the amount of credit you have outstanding is whether you make prompt payments on your credit card debt (and other debt). Without some way to measure this, creditors might be less inclined to offer credit.