United Community Blog

Good vs. Bad Credit

Posted on February 7, 2022

Having credit is both useful and exciting. It can open up opportunities for you to have new experiences, reach goals and enjoy greater purchasing convenience. With good credit, you’re more likely to be able to purchase a home, buy the car of your dreams, get lower interest rates for transferring balances and consolidating debt, and realize other dreams that are important to you.

However, building good credit takes time, effort and discipline. Without these, you may end up with poor credit that prevents you from getting ahead. It may be difficult to get any kind of loan, which means you may not be able to become a homeowner, afford a better car or travel simply because you don’t have enough credit available to you.

Because the strategies for building good credit aren’t always obvious, it’s no wonder people end up with credit scores that are undesirable. The great news is once you know what behaviors contribute to good credit vs. bad credit, it’s easy to take action to build better credit.

Let’s look at the differences in how decisions you make might contribute to good vs. bad credit.

Bad Credit Brandon

While a person with bad credit may be making obvious mistakes, such as failing to make loan or credit card payments, other mistakes are not as easy to spot. Let’s imagine Brandon, who has made the obvious mistake of falling behind on his payments in the past. For the moment, he’s all caught up, but he doesn’t realize he’s making a number of other mistakes.

For starters, Brandon has used almost all of the credit he has available to him. When he applies for a loan, a lender may think he is overextended and, therefore, too high risk. This ratio of credit used to credit available is the second largest factor in calculating credit. The amount of  credit Brandon has used vs the remaining credit available is the second largest factor in calculating credit.

Another problem is Brandon only has credit accounts that have been open for a short time. He closed his oldest credit accounts, which means he has a short credit history with his newer accounts. He also opened several new credit cards within a short time, which makes Brandon appear even more high risk.  Unfortunately, Brandon also only has credit cards, so he can’t show that he has the ability to manage installment loans.

Good Credit Gayle

Gayle doesn’t even have to think about her credit score most days, but she’s a pro at maintaining a high credit score because she’s developed good credit management habits. To start, she always makes her payments on time, of course. She even pays off her credit cards in full sometimes because she recognizes that her credit cards aren’t tools for living beyond her means. This means Gayle’s got plenty of credit available to her, showing lenders that she’s a low-risk borrower.

A few years ago, Gayle transferred higher-interest credit card balances into a lower-rate credit card – but kept the higher-rate accounts open because of her good payment history with those cards. Keeping those accounts open also gives her access to additional credit in case she ever needs it, and she won’t have to apply for new credit cards. This available credit and length of time the accounts have been open help Gayle maintain a great credit score.

In addition to her credit cards, Gayle has a car loan that she is still making payments on – and she’s had a personal loan in the past. Because of this, she’s showing she can manage both revolving and installment credit well – and that looks good to lenders, should Gayle decide she wants to make the leap from renting to owning in the near future.

Help for Building Good Credit

In addition to learning from Brandon’s mistakes and Gayle’s great example, you can build good credit by choosing a local lender who is willing to work with you, like United Community! Our lenders aren’t just friendly – they’re compassionate and committed to helping you get the solutions and resources you need to improve your credit so you can reach your goals.

To speak to one of our lenders about your credit and learn more about how we can work with you, call us at 713-674-5778.

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