Good Credit vs. Bad Credit

Difference Between Good Credit and Bad Credit

Credit, be it good or bad, is money taken from banks or from money lenders for a certain purpose; the manner in which one pays it back determining whether the credit is bad or good. Back then, the term credit had always been associated with bad connotations and anyone who possesses no credit debt at all is considered very dignified. Times have changed however, and fulfilling one’s needs ambitions in today’s world seems almost impossible without credit. Although people from earlier generations might still recoil from the idea of credit that doesn’t mean that all credit is not good. Banks today readily provide credit for life situations such as marriage, for education, and death.

What is Good Credit?

If your family badly needs anything that is too costly for your financial standing, then you definitely require the financial aid of money lenders or banks. Since the money owed would be used for a reasonable cause such as providing proper shelter for the family, it can be considered good credit. A car loan to make life and work easier and more efficient is also a perfect example of a good credit. Good credit, in part, means that the bank or your money lender knows the purpose of your loan and is willing to provide you the money at a fairly reasonable interest rate.

The most important factor that makes a credit good though is making the complete payment on or before the agreed deadline. This, in turn, gives you good credit ratings or credit history, thus, ensuring that you get better chance in getting more loans and better interest rate deals in the future.

What is Bad Credit?

Bad credit on the other hand, is often taken without necessary needs or at a higher interest rate than what one can actually pay back. Let’s take for example booking a very expensive vacation that you could, otherwise, not afford is most likely going to lead to bad credit. Also, paying one debt off by getting credit from another credit company would definitely give you bad credit, too. Millions of people are running very huge credit card balances. Being barely able to pay back, these are considered bad credits that resulted from extremely poor financial planning or uncontrolled spending habits.

Getting bad credit is very disadvantageous for anyone since it greatly lowers credit score, making him/her no longer eligible for future loans even if they are for good causes.

Differentiating Between the Two

In today’s world where everything seems to be easier, escaping exaggerated credit debt does not seem easy at all. Under the constant pressure of a constantly deteriorating economy, many companies resort to providing credit in order to sell their goods. Seeing things which would otherwise be unaffordable, but now available in “easy” installments tempt not just a few people. They buy items without actually needing them in the first place, thus leading to bad credit.

A major difference between bad and good credit is in the person’s need and in the interest rate that comes with the credit.

Credit opportunities are always available for the person with good credit history while bad credit scores make banks and lenders turn down many credit requests, no matter how reasonable.

The differences between the two kinds of credit can be summed up in the following:

Good Credit Bad Credit
-Borrowed for a reasonable cause – Not borrowed out of necessity
-Reasonable rate of interest – Paying one debt off by making another credit card.
– Improves credit score – Greatly lowers credit scores