Credit Scores, Credit Cards & Debt

What Is a Credit Score?

A credit score is a number between 300 and 850 that represents how reliably you repay borrowed money. Lenders use it to decide whether to lend you money and at what interest rate. The higher your score, the less risk you appear to be — so you get better rates.

How Your Score Is Calculated

The FICO score (the most common) is made up of five factors:

• Payment History (35%) — Have you paid your bills on time? This is the biggest factor. One missed payment can drop your score significantly.
• Credit Utilization (30%) — How much of your available credit are you using? Keep this under 30% (ideally under 10%).
• Length of Credit History (15%) — How long have your accounts been open? Older accounts help your score. Don't close old cards.
• Credit Mix (10%) — Do you have different types of credit (credit cards, loans)? Variety helps a little.
• New Credit (10%) — Have you applied for a lot of new credit recently? Too many applications in a short time can hurt your score.

How to Build Credit as a Teen

You can't have a credit score without credit history — and you can't get credit without a history. Here's how to break in:

1. Become an Authorized User

Ask a parent or trusted adult to add you as an authorized user on their credit card. Their good payment history gets added to your credit report — even if you never use the card.

2. Get a Secured Credit Card

A secured card requires a deposit (usually $200–$500) that becomes your credit limit. Use it for small purchases, pay the full balance every month, and you'll build credit with zero risk of debt.

3. Student Credit Cards

Once you're 18, you can apply for a student credit card — designed for people with little to no credit history. Look for one with no annual fee and no foreign transaction fees.

Credit Cards: Tool or Trap?

Credit cards are a powerful financial tool when used correctly — and a devastating trap when abused. The difference is one habit: paying in full every month.

Used right, credit cards offer:

• Rewards — Cash back, travel points, gift cards on purchases you'd make anyway
• Purchase protection — Many cards offer fraud protection and extended warranties
• Credit building — Monthly on-time payments steadily improve your score

Used wrong, credit cards lead to:

• 20–30% interest on carried balances
• Minimum payments that barely cover interest (you could be paying for years)
• Debt spirals that are extremely hard to escape

Understanding Debt

Not all debt is bad. There's a meaningful difference between debt that builds value and debt that destroys it.

Good Debt

Debt used to acquire something that grows in value or increases your earning potential — like a student loan for a career-boosting degree, or a mortgage on a home that appreciates. The key: the return justifies the cost.

Bad Debt

High-interest debt for things that lose value or that you already consumed — credit card balances, payday loans, "buy now pay later" plans on clothes or electronics. These erode your wealth.

How to Pay Off Debt

If you're already carrying debt, two popular strategies:

• Avalanche Method: Pay minimums on all debts, then throw extra money at the highest-interest debt first. Mathematically optimal — saves the most money.
• Snowball Method: Pay off the smallest balance first for a psychological win. Research shows this keeps people motivated and actually works better for some people despite costing slightly more in interest.