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Good Debt vs. Bad Debt


If building a good credit record is important to you, you need to know that the credit reporting agencies do look at the different types of credit through different lenses. They actually consider some credit accounts as being less desirable and will lower your credit score if you rely heavily on them. Specifically, some installment type accounts, or loans may be viewed in a negative light. These are accounts established by appliance or home goods retailers, as well as some consumer credit companies that offer unsecured personal loans. Sometimes these accounts may be unavoidable, but your best move is to pay them off before all other types of credit.

Another form of “bad” debt is all the credit accounts you hold that have balances ratios in excess of 30% (the ratio of the outstanding debt balance to the available credit limit). For each account with a higher ratio, your score can be reduced. It is actually good to have open and active accounts, but they can turn bad if you let their balance get away from you. Make sure to spread your debt balances around; transferring debt from one credit card account to another if you must.

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.