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            Not many people are aware that debt can be considered both good and bad.  For the most part whether debt reflects positively or negatively on your credit report depends on how responsibly you manage the credit line and also what debt is used to pay for.

What’s Considered Good Credit?

            When a creditor looks at your credit report the good debt will stand out because this debt will have been borrowed for what’s considered an investment.  This investment can be any number of things so long as it’s something that will appreciate and add monetary value to your finances.  Home and business loans as well as education loans fall into the good debt category.

            However, unlike home and business loans the debt from an education loan isn’t used for something tangible with a value that’s easily measured.  An education or student loan is putting the investment in you and your earning potential which the education is likely to increase.  Pursuing higher education is a sign that there’s a long term monetary gain that will far exceed the cost of school thus making it an investment.

            Further proof of creditors considering a debt good will be a low interest rate.  Though the interest rate will vary depending on what type of education loan you get and the provider, it’s not uncommon for rates to be as low as 6%.  It’s a positive sign that a creditor is willing to take more risk with the loan because the gains are likely to be worth it.

            Some student loans look still better in the eyes of creditors and on your credit score when it’s a federal student loan because these are backed by the U.S. government.

Credit Score Advantages

            The most obvious advantage to good debt is an increase in your credit score.  That is if the debt is paid off as agreed to.  Because this debt is for an investment it’s adding value and will accordingly add points to your score.
Student credit cards, if managed correctly, can also reflect well on a credit report.  Though credit cards in general can aren’t seen as good debt, these cards can help establish credit which is a very good thing.

Tax and Interest Advantages

            With loans come interest.  It’s a fact of life and the price for getting to use another person’s cash.  However, many people don’t realize that with some loans which are considered good debt the interest charges can be deferred and even tax deductible.  Like home mortgages, an education loans is one of those good debts with tax deduction advantages on the interest.  When you consider this, student loans are highly lucrative because in essence it’s free money.

            And some federal student loans will cover the cost of the interest for students while they’re in school so that they don’t have worry about paying it at all during that time.  Other student loans will allow for the payments along with the interest to be deferred until after college when it’s likely to be easier for the student to pay.

            Remember, if debt isn’t managed properly it’s never considered good debt.  It’s imperative to understand all terms and conditions and that monthly payments are made consistently and on time.