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Trade in Bad Debt for Good Debt

 

Trade in Bad Debt for Good Debt 

Annette Bui| Updated May 2, 2020 | Mortgage Programs 101

 Understanding the key difference between good debt and bad debt makes a significant difference on qualifying for a home loan. For credit reporting agencies, “revolving debt – better known as credit card debt – is the 'bad' debt that weighs down your credit score. The higher your credit card debt, the lower your credit scores will be" (Cox 2017). Even without the cash reserves to downsize or eliminate credit card debts, you still have the option boost your credit rating. The smart way to do so is by converting credit card balances to what is considered the “good” debt – installment debt – that is considered by the credit-scoring world to be less risky and thus more beneficial to your credit scores” (Cox 2017). 


What is a credit score?
 
 Credit score falls anywhere from "300 – 850, better is higher. It's a measure of how likely you are to default (fail to pay) on a loan, the lower the number the greater the risk. Excellent credit is 781+, good is 661-780, fair is 601-660, poor is 501-600, and bad is anything below 500” (Wang, 2019). 


References

Cox, L. (2017, October 18). 7 Credit Score Hacks to Boost Your FICO® Score Fast. Retrieved from Credit Sesame: https://www.creditsesame.com/blog/credit/7-credit-score-hacks-boost-fico-score-fast/ 

Wang, J. (2019, January 31). How to Increase Your Credit.

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