I suppose this is something we all know about, if we’re honest with ourselves, but somehow we tend to convince ourselves that we’ll one day get our affairs in order as far as our relationship with credit goes. It’s perhaps pertinent then to define these terms for what they really are and call a spade a spade as somewhat of a ritual which symbolizes the genesis of a better approach to handling our credit.
It’s important to be able to separate good credit from bad credit as this basic understanding can not only help you manage your on-going finances properly, but also save you from some serious financial trouble down the line. It’s completely true that you never know what could happen in the future, even if right now things seem to be going along smoothly for you, financially. So the action you take now as part of your approach to your credit should be with the future in mind as well, planning for the worst too.
What is bad credit?
At the risk of coming across as a little negative, I had to start with bad credit because for many people credit is just credit. They don’t make the distinction between good and bad credit, but in order for the concept of good credit to exist, there would have to be the existence of bad credit. So what is bad credit then?
Bad credit is that credit which further enslaves you to your job or your source of income, particularly if that source of income requires you to exchange your time for wages. There isn’t a more honest way of looking at it. If you’re offered a credit facility that doesn’t contribute positively to your financial status, then it’s bad credit. So if you’re going to put some designer label clothing on your credit card, I don’t have to tell you that that’s what counts as bad credit.
In many ways getting financing to buy a brand new car is a form of bad credit, but depending on your situation and how you handle your personal financial affairs it can be a necessity to have to deal with that type of bad credit and find ways to take it in your stride. If you’re going to get an upgrade every time your current vehicle is fully paid off and start the whole cycle again, then you’re being a glutton for bad credit.
What is good credit?
For what it’s worth the previously explored example of taking out financing for a car could very well work out to be using credit more cleverly, since your set of wheels may very well be an essential part of your life. Generally though, good credit comes in two forms, one of which is that which results in the acquisition of assets that grow your value in some or other way. For example if you take out a student loan to further your studies and you can definitely pay it back, that’s good credit.
The other form is that of credit which you can easily pay back within a timeframe that essentially renders the associated interests to be paid back null. This is how you build up a good credit record, something which can come in handy to pull you out of a financial difficulty in the future.