Understanding Bad and Good Credit

It's important to understand the difference between Bad and Good Credit.  Nowadays you have to have pretty good credit get a loan.....that or you pay cash for everything. I don't know about y'all but I don't have that much cash in my pocket.

I want to show you the difference between both and help you understand why your credit is so important.


First, lets look at what your credit score is and what it means for you. Now there are several free websites that you can use to check your credit score. Just make sure that you read the terms very carefully before you give them your information.

So here is a basic rundown of what the different credit scores mean:

- If you are in the range from 500 - 659, you have very poor to bad credit. This means that the chances of a bank or other financial institution approving you for a loan are probably slim to none. I'm not saying it can't happen but if it does be prepared for a very HIGH interest rate and HIGH monthly payment.

- If you are in the range from 660 - 699, you have good credit. This is about average for most people. You might have some limitations but for the most part you could probably get approved for a loan if your debt / income ratio is within their guidelines.

- If you are in the range from 700 - 759, you have very good credit and can get approved for almost any loan depending on what your ratio is.

- And if you're in the range from 760 - 850, you have EXCELLENT credit!!!! Most banks won't bat an eye if you have a credit score in this range. But as I've said before it depends also on your ratio.

Ok so now that we've established the difference between Bad and Good Credit, lets talk about the Debt / Income Ratio. Debt would be all your household expenses such as your mortgage, property tax, and homeowner's insurance. But it also includes credit card debt, installment loans, student loans, auto loans, and any child support or alimony you pay. So keep that in mind when considering your debt.

They, however, don't look at utilities, groceries, cell phone bills, or any other bills that they would consider as "luxury"........crazy I know but that's how it is.

Income is ALL income you receive. This could be your income from work, a business you have, and alimony or child support you receive. Just check with their guidelines on income to make sure.

So this is how you achieve your ratio to figure out where you stand:

It's really that simple. I want you to keep something in mind when saying that you can get ANY loan there is or thinking that you don't qualify. Financial institutions look at 2 factors when seeing if you can be approved for a loan. 

- What your credit score is
- What your Debt / Income Ratio is

Meaning, you could have a great credit score that allows you to have a very low interest rate. BUT........ if you don't fall under the DTI Ratio than you might not be approved. Also your DTI could be perfect....BUT....your credit score could be Fair. 

It's very important to make sure that your Credit Score and DTI Ratio are very good because otherwise you might not be approved for that new car you want or purchase your dream home that you've been wanting for years.

** Remember these are just a few guidelines to follow. Certain scores and percentages might vary depending on the financial institution. This is on average what they look at.

You can achieve it. You just have to work hard and not get buried by bad debt and poor decisions. STAY POSITIVE!!!!

*~ Cassie ~*

@livingtobudget