Unit 4: Credit Reports, Scores and Credit Cards

Last updated 10/14/2026 by

Andrew Latham

Summary:

Your credit history affects the interest rate on a car loan, whether a landlord accepts your apartment application, insurance prices in most states and sometimes a job offer. You start building it the day you open your first credit account.

This is Unit 4 of 9 in Money 101 by SuperMoney, a free personal finance course. It takes about 2.5 weeks in a classroom, or 45 to 90 minutes on your own. Then take the five-question quiz below. Score 4 of 5 to mark the unit complete.

What you’ll learn

Explain the difference between a credit report and a credit score.
Name the five FICO score factors and their approximate weights.
Calculate credit utilization.
Read a credit card disclosure.
Show why paying only the minimum is expensive.
Describe safe ways to start building credit.
Dispute an error on a credit report.

Key terms

Credit report: A record of your borrowing and repayment history, kept by the three credit bureaus: Equifax, Experian and TransUnion.
Credit score: A three-digit number (usually 300 to 850) calculated from your credit report that predicts how likely you are to repay.
Credit utilization: Your card balances divided by your credit limits. Lower is better.
APR: Annual percentage rate: the yearly cost of borrowing, including interest and some fees.
Grace period: The time between the end of a billing cycle and the due date. Pay the full statement balance by the due date and you pay no interest on purchases.
Minimum payment: The smallest payment that keeps the account in good standing. Paying only this keeps you in debt for years.
Hard inquiry: A credit check when you apply for credit. Can lower your score slightly for a short time.
Soft inquiry: A credit check that does not affect your score, such as checking your own credit.
Secured card: A credit card backed by a cash deposit. A common first card.

Lesson 4.1: Reports and scores

Your credit report lists your credit accounts, balances, payment history and any collections. The three bureaus each keep their own version. You can get your reports free from AnnualCreditReport.com, the only official site. Most teenagers do not have a report yet, and that is normal.

Your credit score is calculated from your report. The most common, FICO, weighs five factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). The first two make up almost two-thirds of the score, which leads to the two most important credit habits: pay on time every time, and keep balances low.

Checking your own score or report is a soft inquiry and never hurts your score.

Lesson 4.2: How credit cards really work

A credit card is a loan that renews every month. Each month you get a statement with a balance, a minimum payment and a due date. If you pay the full statement balance by the due date, the grace period means you pay no interest on purchases. Used this way, a credit card is free and builds your credit.

If you carry a balance, interest is charged at the card’s APR, which is often above 20%. Paying only the minimum keeps the account in good standing but stretches the debt out for years. Card statements are required to show how long payoff will take at the minimum. Read that box.

Other terms to find in a card’s disclosure: the annual fee, the late fee, the penalty APR (a higher rate that can apply after a late payment), and fees for cash advances and balance transfers. Cash advances usually start charging interest immediately, at a higher rate.

Lesson 4.3: Utilization and building credit from zero

Credit utilization is your balance divided by your limit. $300 on a $1,000 limit is 30%. Keeping utilization under 30%, and ideally under 10%, helps your score. Because the balance that counts is usually the one on your statement, paying down a card before the statement closes lowers reported utilization.

Ways to start: become an authorized user on a parent’s card with a long, on-time history; open a secured card with a deposit; get a student card; or take a small credit-builder loan from a credit union. Under federal law, applicants under 21 need independent income or a co-signer to get their own card.

An easy credit-building routine: one card, one small recurring bill on it (like a streaming subscription), and autopay set to the full statement balance. Within six months you will usually have a score.

Lesson 4.4: Fixing mistakes

Check your reports at least once a year. If you find an account you did not open, a payment marked late that was on time, or a debt that is not yours, dispute it with the bureau that reports it, online or by mail, with copies of any proof. The bureau generally has 30 days to investigate.

Late payments and collections can stay on your report for up to seven years, but their effect fades over time. The fastest way to repair credit is a long run of on-time payments and low balances. Be wary of “credit repair” companies that charge up-front fees. They cannot legally remove accurate information.

Worked example: the minimum payment trap

Assumes a $1,500 balance at 24% APR, no new purchases, and a minimum payment of 1% of the balance plus that month’s interest, with a $25 floor. Card formulas vary.

Pay the minimum only	114 months (9.5 years), about $1,887 in interest
Pay a fixed $100 a month	19 months, about $301 in interest
Difference	8 years sooner and about $1,586 saved

Takeaway: Paying only the minimum costs more in interest than the original purchase. A fixed payment you can afford ends the debt in under two years.

Activity: Read the card disclosure

Use the sample credit card disclosure in the Document Pack (Appendix B). Answer the questions, then run the minimum payment example above with a $3,000 balance using an online credit card payoff calculator.

Purchase APR and penalty APR
Annual fee and late fee
Length of the grace period
Cash advance APR and fee
With a $1,000 limit, the highest balance that keeps utilization under 30%
Months to pay off $3,000 at the minimum vs. $150 a month

The printable worksheet and the sample documents for this activity are in the Money 101 course book (PDF).

Reflect: Write the three rules you will follow with your first credit card.

Up next: Unit 5: Borrowing and Getting Out of Debt | Previous: Unit 3: Budgeting and Saving | Course overview

Andrew Latham

Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.

Share this post:

Add

as a preferred source on Google

Table of Contents