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Difference Between Good Credit and Bad Credit

January 24, 2011 Posted by Olivia

Good Credit vs Bad Credit

Good credit and bad credit are both money that you have taken from a bank or from any lender for some purpose, and that purpose and the rate on which you borrowed only determine whether it’s good or bad. Credit used to be a word with bad connotations in earlier times and a man with no credit debt was considered to be a man with dignity. But times have changed, so much so that without credit it is almost impossible to fulfil all ambitions and requirements of life. People from older generation will still baulk at the idea of any credit at all, but the fact is that not all credit is bad. Today there are banks that are ready to provide you credit in all situations of life whether you want it for education, marriage or even death. How would you describe a credit that a person has taken to build a home for his family with hopes and aspirations?

Good Credit

If there is something that you or your family really need but is too expensive for you to buy, obviously you would require financial help from banks or other lenders. The money would be spent on a good cause that is to provide shelter to your family and hence is called good credit. Similarly buying a car with loan from bank is also an example of good credit as the car is going to serve a nice purpose in your life. When the banks know the purpose for which a person is taking loan and are willing to provide him with money, it is called good credit and the interest rates are also reasonable.

Another point to note is that taking a good credit and making timely payment earns a good credit score for you, which is perceived to be a good thing, in fact an asset for you. If you happen to have a good credit history, you stand a good chance to get more loans at better interest rates.

Bad Credit

Any credit that is taken without a compelling need or at higher rates of interest is considered to be a form of bad credit. For example going on an expensive vacation when you cannot afford it is certainly a bad credit for you. Similarly paying off one debt by taking credit from a credit card company is also a type of bad credit. There are millions of people who are running huge balances in their credit cards. These are all bad credits and a result of poor financial planning and poor spending habits.

Bad credit is ominous for any man as it lowers his credit score and makes him ineligible for loans in future even for good causes.

Difference between Good credit and Bad credit

It is easy to see that in modern times, it is difficult to escape from credits. The world is reeling under severe economic crisis and companies are forced to provide credit to consumers to sell their products. It is really very alluring when you see something you could not buy otherwise to be available on easy instalments. But this is what makes people buy items without really needing them, thus resulting in bad credit.

The major difference between good credit and bad credit lies in the need of the person as well as the rate of interest at which the credit has been availed.

Good credit is available to a person when he has a good credit score while bad credit is available to anyone, anytime and credit score is irrelevant.

Good credit Bad credit
Money borrowed for a good cause No compelling need to borrow money

Paying off one debt by taking credit from another

Reasonable interest rate Higher interest rate
Improve the credit score Lower the credit score

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Filed Under: Banking Tagged With: American Express, bad credit, Bank, commercial banks, Credit, credit card, credit score, financial institution, Good credit, lending institution, Standard Chartered

About the Author: Olivia

Olivia is a Graduate in Electronic Engineering with HR, Training & Development background and has over 15 years of field experience.

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