How credit cards and credit scores work
Learn what affects credit, how interest works, and what to check on a statement.
You will learnExplain the habits that build credit and compare borrowing costs before using a card.
Quick scenario
Choose an answer to see the explanation.Do you need to carry a credit-card balance and pay interest to build credit?
Worked example
Paying a credit card balance
Jamie's fictional card statement shows a $300 balance, a $30 minimum, a hypothetical 24% APR, and an August 15 due date. Paying only $30 leaves $270 unpaid.
$270 × 24% ÷ 12 ≈ $5.40 simplified one-month interest estimate
Avoid purchase interest when the card has a grace period and you pay on time.
The next month starts with debt already attached.
Key ideas
Three things to know
Credit reports and credit scores
A credit report lists accounts, balances, and payment history. A credit score is a number calculated from report information. Checking your own report does not lower your score.
Read the statement before you pay
The statement balance, minimum payment, due date, APR, and fees answer different questions. Paying the minimum can keep an account current, but it does not erase the remaining balance or its possible interest cost.
Read more
- Pay on time
- Keep balances manageable
- Apply only when an account serves a purpose
- Review reports and dispute real errors
Why actual interest may differ
The example above uses APR divided by 12 to teach the idea. Issuers generally use daily balances and transaction timing, so an actual statement can differ. Read the card agreement for the exact method and whether a grace period applies.
Practice
Check one credit fact without guessing
Use the example first. Then change one number and compare the result.
Interactive calculator
See how a payment changes the balance
This does not estimate an actual bill or interest charge.
Knowledge check
Check your understanding
Question 1 of 2