The difference between “good debt” and “bad debt”

Dear Experian,

I have read that consumers can pay to delete detrimental information on their credit report. Initially, I thought that sounded too good to be true. Is it? Also, is that legal? I’ve also heard that debt can be classified as “good” debt, such as student loans and “bad” debt like outstanding credit card balances. Is there any truth to this?



Dear GLO,

You know what they say, “If it sounds too good to be true, it usually is!” This is no exception.

The Federal Trade Commission has said that no one can legally remove accurate, negative information from your credit report. The federal Credit Repair Organizations Act (CROA) prohibits companies from telling you to lie and from collecting your money until they have delivered the service promised.

If the information in your credit report is accurate and can be verified, it will remain until the legally specified deletion date. For late payments, that is seven years from the original delinquency date. You can find detailed information about when information will be deleted in the Ask Max “Common Topics” section.

The terms “good debt” and “bad debt” don’t refer to the money you owe, but rather are social terms for the reason for the debt.

Student loans are frequently the example of good debt because the debt paid for an education usually results in greater earning potential in the future. There is a clear, positive reason for taking on the debt. It is an investment in your financial future.

Bad debt is debt that has no positive return on your investment and for which you have no predetermined repayment plan. Credit card debt is often characterized as bad debt because people use their credit cards to make impulse purchases. With no thought given to how they will repay the charges, they may find themselves stuck in a financial quagmire.

But that doesn’t mean all credit card debt is bad debt. Credit cards can be very effective financial tools when used wisely and the way you manage that debt is very important in building a positive credit history that will earn you the lowest rates when you want new credit.

Accounts for student loans or credit cards are not classified as good or bad in your credit history.  They will be scored like all other accounts, based on how much you owe and how you make payments.

Thanks for asking.

- The “Ask Experian” team

Our policies for Ask Experian:

The information contained in Ask Experian is for educational purposes only and is not legal advice. You should consult your own attorney or seek specific advice from a legal professional regarding your particular situation. Please understand that Experian policies change over time. Posts reflect Experian policy at the time of writing. While maintained for your information, archived posts may not reflect current Experian policy. The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team will include it in a future post.