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Credit: the good, the bad and the ugly

The good

  • A good credit history can mean lower interest rates, a job offer, or a desirable apartment.
  • Good credit gives you negotiating power. You can ask for better rates.
  • You may save on premiums with auto and home insurance.
  • Paying on time is the #1 way to get and keep a good credit score.
  • Your credit score indicates what level of risk you represent; the higher your score, the less risk, resulting in better credit.
  • Established credit may help you save with better offers and no deposits on utilities and services.
  • You can get one free credit report from each bureau every year.

The bad

  • Late payments are the easiest way to ruin credit. Call creditors and work out arrangements.
  • Too much debt can hurt you. Balances should stay to within 30 percent of total available credit. For example, keep the balance to $300 and under on a $1,000 credit limit.
  • Having too much credit will hurt you. Reject offers to increase your credit line limit.
  • Your credit score is lowered every time you apply for new credit.
  • Not having an established credit history can make it difficult at first, but be patient.
  • Not having different types of credit can lower your credit score. Have both loan and credit card accounts.

The ugly

  • Defaulting means not repaying a loan obligation. In addition to adding high fees and fines to your charges, you ruin your credit score for the next seven years, or longer.
  • Higher interest rates are the penalty for bad credit. Just a few percentage points can cost thousands of dollars, greatly increasing the real cost of your purchases.
  • Bad credit can mean being denied new credit. If you are denied, you get one free report from that bureau that allows you to better understand why.
  • Creditors may not haul you off to "debtor's prison," but they can pursue legal proceedings that could result in garnishing your paychecks and putting liens on or repossessing your property.