What is the difference between good credit and bad credit?
Monday, December 28th, 2009 at
4:37 am
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Filed under: Bad Credit Help
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You get bad credit by not paying your bills, not making payments on time, and this makes your credit score to drop. The lower your credit score, the higher your interest rates will be when you apply for any type of credit or loan.
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If you’re not applying for credit, then it doesn’t really matter whether you have good credit or bad credit as long as you are paying your bills on time now. The difference comes, though, when you want to establish a new line of credit (house, car, new credit card, etc.). Someone with good credit (low balances, always pays on time, high credit score) will get a better interest rate than someone who hasn’t always been responsible with their money. Simply put, your credit rating reflects how good/bad a risk you are to loan money. Lenders would demand a higher rate of interest if they were more concerned about your ability or willingness to pay your bills on time.
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Your credit score is made up of the following things;
1. Payment history 35%
2. Time in bureau 15%
3. New credit 10%
4. Type of credit used 10%
5. Debt to income ratio 30%
As you can see items 1,2&5 are the most important as far as score is concerned. So you are going to want at least 3-revolving accounts (credit cards) with long good pay history’s and at least 2-installment loans (cars, boats, homes or personal loans) also with good long pay historys to achieve the maximum score and profile.
You always want to make your payments on time or before they are due. Pay as much as you can every month and try not to exceed 30% of your credit limit in any given month.
If you can achieve this, you will never have to worry about your credit. Good credit takes years to establish and only about 3-months to destroy.
I would suggest that you go to the web site I put in the source list and get your free copy of the Consumer Action Handbook. It has a lot of really good information about credit.
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Finance Manager for over 7-years / 2007 Edition Consumer Action Handbook free at http://www.ConsumerAction.gov
Good Credit is usually something like a mortgage or a low rate car or student loan. The reason it is good is because it will help you build your credit history and it shows potential creditors that you have a history.
Bad credit is credit card debt or some kind of high interest rate loan. The reason it is called bad credit is because it has high rates and high balances. If you do not have a balance on your credit card (aka you pay it off completely every month), then it would not be classified as bad credit. Creditors look at items like this negatively and high balances on credit cards will negatively affect you score.
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