Good Credit vs. Bad Credit

Creditors categorize certain practices and items on your report as either “good” or “bad,” then rank them from "good" to "great," or "bad" to "worse." For creditors, the ratio of positive to negative practices listed on your report paints a picture of you as either a good credit risk or a bad credit risk. Having "good" credit means that creditors believe they can count on you to repay them. Creditors hesitate in lending to individuals or organizations with bad credit records out of concern that they will not be repaid in a consistent and timely fashion.

Good credit often translates into lower interest rates, fewer fees and more options. Bad credit means high interest rates, more fees, and greater restrictions on lending options, employment opportunities and other life necessities. Bad credit can close the door to banks and other lending institutions.

The two main methods of establishing good credit are:

1. To pay your bills on time; and
2. Keep your debt to a minimum.

Some practices and items that creditors view as negative marks on your report (rated from "bad" to "worst") include:

• Credit inquiries
• Credit rejections
• Late payments
• Past due and unpaid accounts/payments
• Court judgments
• Collections
• Loan defaults (includes student loans)
• Repossessions
• Foreclosures
• Bankruptcy