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Good Debt vs. Bad Debt |
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Posted: 31st January 2012 |
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If building a good credit record is
important to you, you need to know that the credit
reporting agencies do look at the different types of
credit through different lenses. They actually
consider some credit accounts as being of less
desirable and will lower your credit score if you
rely heavily on them.
Specifically, some installment type accounts
or
loans may be viewed
in a negative light. These are accounts established
by appliance or home goods retailers, as well as
some consumer credit companies that offer unsecured
personal loans. Sometimes these accounts may be
unavoidable, but your best move is to pay them off
before all other types of credit.
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Another form of “bad” debt is all of the
credit accounts you hold that have balances
ratios in excess of 30% (the ratio of the
outstanding debt balance to the available
credit limit). For each account with a
higher ratio, your score can be reduced. It
is actually good to have open and active
accounts, but they can turn bad if you let
their balance get away from you.
Make sure to
spread your debt
balances around; transferring
debt from one credit card account to another
if you have to.
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