Good Credit Versus Bad Credit
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Do you know how your credit impacts your credit score? Did you
know that there is such a thing as bad credit, which actually
has an adverse effect on your score?
Ditto for debt; there is such a thing as good debt, which could
actually improve your financial and credit situation.
There are some determining factors that differentiate whether
credit is good, or bad. One of the easiest ways to understand
good debt is to take a look at some examples:
An example of good debt is anything with a higher price tag that
makes paying in cash impossible for most people, and is something
that you need. A house - and its mortgage - is a prime example
of taking on good debt. One the subject of mortgages, their interest
rates is usually lower than those of credit cards, which are generally
high interest debts. A mortgage can give you a tremendous effective
credit reference.
Guess what? Financing an automobile is another good example of
good credit. Just remember to shop around for good credit terms,
like a low (or relatively speaking, the lowest) interest rate.
If you have really damaged credit, another way to get back on
your feet and reestablish good credit is to apply for a bad credit
auto loan. There are many online lenders that focus on helping
loan applicants with bad or no credit get guaranteed approvals,
and if you make your loan payments in a timely fashion, you'll
also improve your credit score.
Bad credit is considered any type of debt with a high interest
rate for things that aren't necessary. Whipping out your credit
card to pay for that boat, or summer vacation would be considered
bad credits.
Credit cards are the worse form of bad credit debt since they
carry the highest interest rate levels. It's too easy to fall
into the trap of over extension with credit cards, and is the
number one reason why people fall behind and end up with a bad
credit score on their records.
If you want to recover from the negative impact of bad credit,
there are a few things that you can do. First, if you have multiple
credit cards, pay them off completely if you can. Start with the
one with the highest interest rate, then move down the line with
the 2nd card with the highest rate, and continue until you've
paid them all off.
It you take the steps to pay off your credit cards, you'll be
back on the road to establishing a good credit score. By the way,
what's considered a good credit score may differ between credit
reporting agencies, but a credit score 680 -700 range is considered
good; an excellent credit score 700 - 720 range is just about
as good as it gets.
So there you go. Good credit debt are necessary purchases - if
you make your payments on time, you'll improve your credit rating,
so by all means, learn to harness the power of good credit debt.
On the other hand, bad credit debts aren't necessary purchases
- and can too easily lead to financial hardship down the road.
Steer clear from bad credit debt as diligently as you can.
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