Credit cards 101: what they don’t teach you in school

Credit cards can feel like a rite of passage into adulthood. Without the right knowledge, they can also become a fast track to debt. This is the briefing I wish every student got before the first piece of plastic arrived in the mail.

How a card actually works

A credit card is a loan you repay. If you pay the statement balance in full each month, you typically pay no interest. If you carry a balance, interest — often 20 percent or more annually — is charged on what you still owe.

The minimum payment is designed to keep the account current, not to get you out of debt. Paying only the minimum can keep a $1,000 purchase on the books for years.

Credit scores, in one paragraph

Your payment history and how much of your available credit you use (your utilization) are the two biggest drivers of a score. Pay on time. Keep utilization under about 30 percent. Do not open five cards in a month because a campus table offered a free t-shirt.

Rules that keep a card useful

Never charge something you cannot pay off this month, unless it is a true emergency with a written payoff plan. Read the APR, the late-fee, and the penalty-APR language before you activate the card. Treat rewards as a discount on spending you already planned — never as a reason to spend more.