As with anything else, credit cards can also get a bad rap.

Everyone is an expert at one thing or another, and what seems to stand out in my research on this topic is that most credit card experts have never worked for a credit card company. Even those individuals who have done so seem incomplete. As for me, I do not claim to be an expert on the subject. What you will read here is a synopsis of the information I have collected. I’ll try to make this perfectly clear and subjective. At the same time, I must point out that there is little objective evidence to support most of the myths that circulate on the Internet.

First, let’s tackle a question about debt and credit cards. In my research, the predominant research avoids credit cards that reward debt. The definitive answer is an emphatic “Kind of”. In fact, it is quite the opposite and the reasons seem logical. The rewards one can receive with little or no debt are a greater acceptance of more credit, which means it’s easier to get a personal loan from your local bank. Interest rates are also lowered by the fact or assumption that you pay your bills on time, keeping any credit card balance zero, which prevents the creation of bad debt.

On the other hand, an individual with relatively large debt is penalized with higher interest rates and a limited choice of personal loan resources. The definition of what bad debt is is an arbitrary conclusion that is really determined by the circumstances. Bad debt can be thought of as debt with a high interest rate attached to the initial loan. For example, getting a mortgage loan at 4.5% is not a bad debt, nor would buying a car or motorcycle at 7% interest. What would cause a bad debt in this scenario is if the car or motorcycle loan defaulted for any reason. At the same time, having many credit accounts open at the same time that have unpaid balances and some are nearing the limit is another example of bad debt.

Some debt is good

Carrying a certain level of debt is sometimes unavoidable. However, credit card companies reward people with credit scores near the higher end of the spectrum, between 650 and 850, with lower rates and higher limits on their accounts. The full range of the typical credit score is 300 to 850 points, with up to 31% of this number coming from the amount of debt a person has. The more debt a person incurs, the lower their score will be.

In a large number of cases, a person’s debt comes from credit cards, which is generated by voluntary means indicating the fact that the person applied for and was accepted as a tangible credit risk due to their current score. Notice I said score, not grade. The ratings are for things like mortgage-backed securities or corporate bonds, not “consumer Joe.” Credit scores are what the consumer gets through a credit report, which lists creditors, personal information, inquiries, and collection items, all related to loans and outstanding amounts.

debt maintenance

Obviously, the best way to avoid debt is to pay anything upfront and in cash. Unfortunately, very few of us have this ability. With this in mind, then, what we must consider when working with a credit card is the importance of paying it in full every time. This helps avoid unnecessary interest charges, which increased due to minimum or missing payments. Again, this is an example of bad debt where late payments occur and only the minimum is paid. Doing so will only damage a person’s credit in the long run.

In the case of dealing with home loans and auto loans, paying a few dollars more each month adds up and can lower the amount of interest on those loans. Face it, a good portion of a mortgage payment is based on interest. The same goes for a car loan. Naturally, at this point the dispute over debt-rewarding credit cards has been cleared up. Credit card companies reward relatively lower debt and penalize relatively higher levels of debt. That said, lower or near-zero debt means better or lower interest rates with a higher probability of personal loan acceptance. Where it is quite the opposite in cases where there is a higher level of indebtedness.