Credit cards and credit scores, explained
The three-digit number that follows you for years, and how a credit card can help it or wreck it.
Credit means borrowing money now and paying it back later. Lenders want to know whether you'll pay them back, so they check your credit report, a record of your borrowing and how you've repaid it, and your credit score, a number based on that report. The most common scores run from 300 to 850. Higher is better.
A good score saves real money. It can mean a lower rate on a car loan, a lower deposit on an apartment, and sometimes cheaper insurance. Landlords and some employers look at credit too.
What moves the score most:
- Paying on time, every time. This matters more than anything else.
- Credit utilization: how much of your credit limit you're using. Keep it under 30%, and lower is better. Using $900 of a $1,000 limit hurts. Using $100 is fine.
- How long you've had credit, which is why starting carefully and early helps.
A credit card lets you borrow up to a limit. If you pay the full balance each month, you usually pay no interest at all. If you don't, the leftover balance is charged interest at the card's APR, often 20% or more a year.
The trap is the minimum payment. Paying only the minimum keeps your account in good standing, but most of that payment can go to interest. A $1,000 balance paid at the minimum can take years to clear and cost hundreds in interest.
The simple rule: only charge what you could pay with cash today, then pay the whole bill every month.
For teachers: covers NC EPF EPF.MCM.3.1 Credit sources and services; EPF.MCM.3.2 Managing debt and creditworthiness; EPF.MCM.2.3 Cash, debit, payment apps and credit cards; EPF.MCM.3.3 Pros and cons of debt.
In the news
Real stories from recent issues, each with class slides and a worksheet.
New issues about credit cards and credit scores show up here as they come out.
Lesson worksheets
- Credit cards and credit scores25 minutes. How credit card interest works, why the minimum payment is a trap, and what builds a credit score.
- Car loans: the real cost25 minutes. How the interest rate and loan length change what a car really costs.
Words to know
- Credit score
- A number, usually from 300 to 850, that tells lenders how likely you are to pay back what you borrow. Paying bills on time is the biggest factor.
- Credit report
- A record of how you've borrowed and paid back money. You can check yours for free at AnnualCreditReport.com.
- Credit utilization
- How much of your available credit you're using. Using a small share of your credit limit is better for your score.
- Credit card
- A card that lets you borrow money to pay for things. If you don't pay the full bill each month, you're charged interest on what's left.
- APR
- Annual percentage rate: the yearly cost of borrowing money, shown as a percent. It includes interest and some fees. Many credit cards charge more than 20%.
- Minimum payment
- The smallest amount you can pay on a credit card bill without a late fee. Paying only the minimum can keep you in debt for years.
- Loan term
- How long you have to pay back a loan, like 60 months for a car loan.
- Down payment
- The part of a big purchase, like a car or home, that you pay up front instead of borrowing.
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More topics
Inflation · Interest rates and the Fed · The stock market · Investing · Budgeting · Paychecks and taxes · Loans and debt · Banking and saving · Insurance · Scams and identity theft · The economy: jobs, GDP and recessions · Supply and demand · Tariffs and trade
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