You’ve probably heard that not all debt is created equal; that some debt is good and some is bad. What does that mean? Isn’t all debt bad? If not, what are some examples of good debt and what is bad debt? The credit experts at the Equifax Finance blog answer these questions, how good debt can help you get a mortgage in Atlanta with better credit scores and more in the recent article, “Your Credit Score: Good Debt vs. Bad Debt.”
Good debt is considered an investment in something that creates value. A mortgage on a new home, for example, is considered an investment because over time, your home’s market value increases. Student loans are also considered good debt, since student loans are an investment in your future. With your college degree, you’ll be able to get a good job that pays well.
Bad debt is debt taken on to pay for a lifestyle that you can’t afford, like paying for expensive vacations, new clothes, entertainment and eating out, etc. Those things won’t help your financial future.
If you overextend yourself and fall behind on payments, your debt will start piling up, especially if you are using a high interest credit card and not paying off your monthly balance in full. Debt that uses too much of your available credit can also be considered bad debt; keeping your ratio of debt to available credit as low as possible is important to lenders. If you have too much debt already, it may look excessive in the eyes of lenders.
You can’t improve your credit score overnight, but with responsible use of credit, making on time payments and paying down your debt as quickly as possible, you’ll be taking the right steps to see eventual improvement to your credit score and report. Get more answers to your credit questions on the Equifax Finance Blog, where you can also find lots of helpful information on other personal finance topics, from retirement to insurance to identity theft protection and more.