Understanding Credit: Scenarios of Good and Bad Credit Use

Read each scenario and decide whether it would constitute a use of good or bad credit, then briefly describe why.

Jessica frequently uses her credit card for impulsive and non-essential purchases, accumulating a high balance. She only makes minimum payments each month, resulting in substantial interest charges. The items she bought quickly lose their value, and Jessica finds herself in a cycle of debt, struggling to pay off the credit card balance.

Mark decides to take out a home improvement loan to renovate his outdated kitchen. The renovations increase the overall value of his home, and he enjoys an improved living space. The interest rates on the loan are reasonable, and Mark sees it as an investment in his property.

Alex has a passion for photography and decided to start a photography business. To purchase high-quality equipment and set up a studio, he secures a small business loan. The business thrives, and Alex is able to repay the loan while turning his passion into a profitable career.