Welcome back! Last week, we discussed shopping around for credit, and the definitions of ‘fixed rate’, ‘variable rate, and ‘prime rate’. If you missed last week’s article, feel free to review it by clicking here
. This week, we’ll be talking about two types of credit: good vs bad.
Definition of the week:
is an agreement between a borrower (debtor) and a lender (creditor). This usually takes the form of a cash loan, and is usually not secured with an asset.
is a type of loan secured with real estate (e.g. a house or a piece of land) or personal property.
Good Credit vs Bad Credit
Is there really such a thing as ‘good credit’ and ‘bad credit’? The answer to this question depends on the sentiment behind the need for credit.
When talking about good credit, it is generally meant as credit that is beneficial to an individual, family, or even a business. This type of credit is usually used for something that is needed but too expensive to afford cash. Good credit includes credit used to buy a car, house, pay for education or to grow your business.
Good credit is often associated with reasonable interest rates and when paid off consistently, good credit is beneficial for your credit score.
To find out whether your credit score is bad, acceptable or good, visit www.mycreditcheck.co.za
and subscribe to receive monthly credit reports at a small fee. Regularly checking your credit score is one of the best ways to keep tabs on your finances relating to credit. Your credit report is a complete record of your financial history. It also contains your personal information, others’ perception of your creditworthiness, your account data, and dispute information. You can also track any alerts on your profile.
Often affecting credit scores negatively is bad credit. This type of credit is usually taken to satisfy a want more than a need. Often consumers take out credit to afford luxury items such as branded clothing, expensive food, or unnecessary technologies. One of the reasons this credit is considered bad, is that the interest rates are often in the highest ranges retailers are allowed to charge.
A second reason is that having too much of these types of accounts can affect your credit score for the worse – especially if you skip payments or default completely.
It’s worthwhile mentioning that living completely debt free is not always the best option either. Having a small amount of debt that you pay off consistently can help your credit rating. The key is taking our credit that is beneficial and being responsible in terms of affordability and payments.
Come back next week to learn more about credit life insurance!