As you make use of unsecured credit facilities, such as credit cards and personal loans, your borrowing and spending activities will be collated, building up a record over time.
This record is known as your credit history, and is used by banks and other financial institutions to determine the likelihood of you paying back an unsecured loan or debt.
Consistently missing payments will result in a bad credit history, even if the amount of debt is low. Conversely, a habit of making payments on time creates a favourable credit history, even if you've incurred a significant amount of debt.
Your credit history is a main component used in the calculation of your credit score (see below).