PENALTY: Can I be penalised for linking to bad websites?

Yes, it’s possible to get a penalty for linking out to websites that are unrelated or sites that have a penalty. When you link to a website, Google sees your link as an endorsement you make for that site. If you endorse websites that have SEO problems or they have an overall bad reputation, chances are you’ll get a penalty as well. If you are not sure the website you are linking to is good, you should link using a rel nofollow attribute.