← Money Basics After High School · about 50 min
Credit and debt
Your credit score, how cards really work, and the minimum-payment trap.
What a credit score is
A credit score is a number, usually from 300 to 850, that tells lenders how likely you are to pay back money. Landlords, car lenders, and sometimes insurers and employers check it. A higher score means lower interest rates, which saves thousands of dollars.
| Factor | Share | In plain words |
|---|---|---|
| Payment history | 35% | Do you pay on time? One payment 30+ days late can hurt for years. |
| Amounts owed | 30% | How much of your credit limit you're using. Keep it low, under 30%. |
| Length of history | 15% | How long you've had credit. Keep your first card open. |
| New credit | 10% | Applying for lots of cards at once looks risky. |
| Credit mix | 10% | Having different kinds (a card, a car loan) helps a little. |
Building credit from zero
- Start with a student card or a secured card (you put down a deposit, say $200, and that's your limit).
- Put one small bill on it, like a streaming subscription, and set autopay to the full balance.
- Check your credit reports for free at AnnualCreditReport.com. That's the official site, and it's free every week.
- Never pay someone to "fix" your credit. You can dispute errors yourself for free.
APR and the minimum-payment trap
- APR
- Annual percentage rate: the yearly interest rate on a card or loan. The average card APR is about 21% (May 2026).
- Monthly interest
- APR ÷ 12 × your balance. At 24% APR that's 2% a month.
- Grace period
- Pay your full statement balance by the due date and you pay $0 interest. This is the whole secret of using a card well.
- Minimum payment
- The smallest amount you can pay without a late fee. It's set low on purpose: most of it goes to interest.
Worked example: $2,000 on a card
Jordan has a $2,000 balance at 21% APR and stops using the card. What does it cost to pay off with $100 a month vs. only the minimum?
- Monthly rate
21% ÷ 12 = 1.75% per month - First month's interest
$2,000 × 0.0175 = $35.00 - Paying $100: how much actually reduces the debt in month 1?
$100 − $35 = $65 - Paying $100 every month (calculator, month by month)
25 months, $483.23 in interest - Paying only the minimum (1% of balance + interest, at least $25)
137 months (11 yr 5 mo), $2,457.78 in interest
Paying the minimum, Jordan pays more in interest ($2,457.78) than was originally borrowed, and is still paying more than 11 years later.
Try it
Credit card payoff calculator
Minimum payment here = 1% of the balance + that month's interest, at least $25. Card companies use similar rules; check your statement. Assumes you stop using the card.
Student loans basics
Federal student loans for undergraduates have a fixed rate of 6.52% for loans first paid out Jul 1, 2026 – Jun 30, 2027. Borrowing $20,000 at that rate on a standard 10-year plan means paying about $227 a month and $7,276 in interest.
- FAFSA
- The free form that unlocks federal grants, work-study, and loans. Fill it out every year, even if you think you won't qualify.
- Grants vs. loans
- Grants (like the Pell Grant) don't get paid back. Loans do, with interest.
- Subsidized vs. unsubsidized
- Subsidized: the government pays the interest while you're in school. Unsubsidized: interest grows from day one.
- Federal vs. private
- Federal loans have fixed rates and flexible repayment options. Private loans usually need a co-signer and have fewer protections. Use federal first.
Practice
A card has a $1,000 balance at 24% APR. About how much interest is charged this month?
Show answer
24% ÷ 12 = 2% a month. $1,000 × 0.02 = $20.
Your card limit is $1,000 and your balance is $300. What's your utilization? Is it OK?
Show answer
$300 ÷ $1,000 = 30%. That's the upper edge of the usual advice. Lower is better.
Use the calculator: $1,000 at 24% APR, paying $50 a month. How long, and how much interest?
Show answer
26 months and about $289.88 in interest.
Your statement balance is $180 and you pay $180 by the due date. How much interest do you pay?
Show answer
$0. Paying the full statement balance on time keeps you in the grace period.
You borrow $5,500 in federal loans at 6.52% for 10 years. The payment is $62.51 a month. What's the total interest?
Show answer
$62.51 × 120 = $7,501.20 paid. $7,501.20 − $5,500 = $2,001.20 in interest.
Can you…
Sources and dates
- Federal Reserve G.19 via FRED: credit card interest rate, all accounts · as of May 2026 (all accounts; about 22% on accounts actually charged interest)
- Federal Student Aid: Direct Loan interest rates for 2026–27 · as of Loans first paid out Jul 1, 2026 – Jun 30, 2027
- myFICO: What's in my FICO score · as of Oct 2026
- AnnualCreditReport.com: free credit reports (official site) · as of Oct 2026
- CFPB: Credit reports and scores · as of Oct 2026
- Federal Student Aid: Interest rates and fees · as of Oct 2026