Good Credit /
Bad Credit

Good credit means that you make payments on time and repay your debts as promised. Good credit is important because it makes it more likely that you can get a new loan in the future when you want to make a major purchase, such as a car or a home. When you have a good credit record, lenders feel more confident that you will be willing and able to pay back the new loan.

A history of writing bad checks—checks written when your bank account doesn’t have sufficient funds—will prevent you from building good credit. In addition, banks often charge hefty fees for bad checks. The average charge is $25, but it can go higher. Your bank may even close your account, and the bad check(s) may prevent you from getting another checking account for years. Even worse, writing bad checks is against the law.

Credit offers a number of advantages:

• It is more convenient and safer than carrying cash. With a credit card, you can purchase things you need even when you don’t have enough cash in your pocket.


• It’s especially helpful in the event of emergencies, such as unexpected car repairs, dental/medical expenses, or a family emergency.


• It lets you take advantage of sales when you don’t have the ready cash so you don’t have to save up for larger purchases. However, since credit puts you in debt, it can be a disadvantage as well.

Credit has several disadvantages:

• Credit is expensive. Some credit card companies may charge high annual interest rates. This means you pay more for what you purchased than what the price tag said. Almost all credit card companies charge late fees—some late fees may run as much as $30 if your payment is even one day past due.


• Credit uses your future money. Because credit isn’t free money, you have to pay it back eventually. That means you’ll have less money to spend on other things because you’re still playing catch up.


• Credit can be difficult to manage. The interest and late fees can overwhelm your budget. You may find yourself borrowing even more money to pay off old loans and meet current expenses.

Credit can be damaged easily. If you don’t manage your credit well, you could end up with a bad credit history. This means you could have difficulty buying a house, a car, or other items you want in the future. That’s why it’s in your best interest to establish and maintain “good credit.”