Curriculum · Credit

Credit cards and
credit scores

The one financial product almost every student will use badly at least once — and the number that quietly follows you into apartments, car loans, and mortgages.

A credit card is not money. It is a short-term loan you agree to repay in full each month. Used that way it is close to free and quietly useful; used any other way it is one of the most expensive forms of borrowing available to an ordinary person.

What actually happens when you swipe

The issuer pays the merchant and records what you owe. On your statement date, the balance is totalled and you are given a grace period — usually around three weeks — to pay it. Pay the full statement balance inside that window and you are charged no interest at all.

Pay anything less, and interest begins accruing on the remainder, typically at an annual rate above 20%. The "minimum payment" is designed to keep you borrowing: on a $1,000 balance at 24% APR, paying only the minimum takes years and can nearly double the cost.

There is only one rule that matters at the start: never spend on a card what you could not pay in cash today. Everything else is detail.

APR, fees, and rewards, in that order

  • APR is the annualised interest rate on unpaid balances. It only matters if you carry a balance — but that is exactly when it matters enormously.
  • Annual fees are worth paying only when the benefits you will genuinely use exceed them. For a first card, look for no annual fee.
  • Rewards — cash back or points — are typically 1–2% of spending. They are trivial compared with a single month of interest, so never let them drive a purchase.

What a credit score is measuring

A credit score is a lender's estimate of the probability you repay. Scores commonly run from 300 to 850, and the inputs are weighted roughly like this:

  1. Payment history (~35%). Have you paid on time? Nothing else comes close.
  2. Utilisation (~30%). Balance divided by limit. Keeping it under 30% helps; under 10% is better.
  3. Length of history (~15%). Age of your accounts, which is why starting early is an advantage.
  4. Credit mix (~10%). Whether you have handled more than one kind of credit.
  5. New applications (~10%). Several applications in a short period looks like distress.

A single 30-day late payment can cost a good score a large number of points and stays on your report for years. Automating the payment removes almost all of that risk.

How a student builds credit before 21

  • Become an authorised user. A parent adds you to a long-standing card; its history can begin reporting under your name with no spending required.
  • A secured card. You deposit, say, $200 and that becomes your limit. It reports like any other card and graduates to a normal card over time.
  • A student card at 18. Low limits, no annual fee, and designed precisely for someone with no file yet.

Pull your free annual reports from all three bureaus at AnnualCreditReport.com and check for accounts that are not yours. Errors are common and disputes are free.

Next

Credit works best on top of a plan and a buffer — start with budgeting, then saving & banking, or return to the curriculum overview.