Good Debt, Bad Debt & Credit Scores (Years 9–11) — Financial Literacy

How to tell debt that builds your future from debt that drains it, what affordability means, and how a credit score is built and used.

Not all debt is the same. Borrowing to train as an electrician might lift your income for life; borrowing at 40% interest to buy trainers you will outgrow does the opposite. Grown-ups call this the difference between good debt and bad debt, and spotting which is which is one of the most useful money skills you can own.

Why this matters — The exact same word, "debt", can mean a wise investment or a slow leak. Judging borrowing by what it buys and what it costs, rather than how nice it feels, protects your future self.

Good debt vs bad debt

Good (productive) debt is borrowing for something that lasts or earns — a home you will live in for decades, training that raises your wages, tools for a business. It is usually cheaper to borrow for these, and the thing you buy holds or grows its value.

Bad (consumer) debt is high-interest borrowing for things that quickly lose value or get used up — takeaways, gadgets you will replace, holidays paid off long after they end. You are still paying interest on the fun long after it is gone.

	Good debt	Bad debt
Buys	Something lasting or income-producing	Something that loses value fast
Interest	Usually lower	Often very high
Examples	Mortgage, training, student loan	Store card on clothes, payday loan

Good debt tends to build value; bad debt tends to burn it.

Affordability

Even good debt is only sensible if you can afford it. Affordability means the repayments fit comfortably alongside your other bills, with room to spare if life changes. A quick test: after the loan payment and all your essentials, is there still money left to save? If borrowing would leave you with nothing, it is not affordable yet, however tempting.

What a credit score is

A credit score is a number that lenders use to judge how reliably you repay. It comes from your credit history — a record built over years of your borrowing and repaying. Pay bills and loans on time and the score rises; miss payments, max out cards, or borrow heavily and it falls.

Lenders check it before offering a mortgage, loan, phone contract or credit card.
A stronger score can mean lower interest rates and easier approval.
You build it slowly: paying on time, staying well below your credit limits, and being on the electoral roll all help.

Your history moves the needle from poor towards excellent.

Worked reasoning: Two people both borrow £10,000. One buys a van and starts a business that earns £400 a week; the other funds a luxury holiday. A year on, the first has income and a valuable van; the second has memories and the same debt. Same amount borrowed, opposite results.

Common mistake: Believing you have no credit history because you have never borrowed. Lenders can be wary of a thin file too — a small, well-managed borrowing record often scores better than none. Also, checking your own score does not harm it.

Memory hook: "Does it build me or bleed me?" Good debt builds your future; bad debt bleeds it. This is education, not financial advice.