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Debt, Credit Cards, and Your Credit Score: A Love Story

Updated: Oct 31

Mortgages are a type of debt




Debt can feel like a scary topic, but it doesn’t have to be. In Part 1 of our two-part series on debt, we’re laying the groundwork for understanding how debt, credit reports, and credit scores affect your personal financial journey.


If you've ever felt overwhelmed or unsure about the difference between good and bad debt, or if the phrase "credit score" makes you want to tune out, this episode is for you.


Why We’re Talking About Debt


Debt is common - millions of people take on debt at some point in their lives. Yet it often carries a heavy stigma. Many people associate debt with failure, irresponsibility, or shame, which makes it harder to talk about… and harder to manage effectively.

But not all debt is bad. In fact, some types of debt can actually help you build wealth and reach your financial goals. The key is understanding the difference, and learning how to use debt and credit as tools, not traps.


Why Do People Go Into Debt?


There are many reasons people take on debt, and it’s not always because of bad decisions. Here are some common examples:

  • Emergencies: When unexpected expenses arise and your emergency fund isn’t built up yet, a credit card may be your only option.

  • Cost of Living: If expenses outpace your income, you might rely on credit cards to close the gap.

  • Limited Financial Education: Many people simply don’t know how interest, minimum payments, or credit utilization work, and end up in debt without realizing the long-term impact.

  • Purposeful Investments: Sometimes, debt is a strategic choice - like taking out a mortgage or business loan. (We’ll dig deeper into this in Part 2!)


Types of Debt: The Good, the Bad, and the Necessary


All debt isn’t created equal. Here are some common types of debt we explore in the episode:

  • Credit Cards: Useful for building credit and earning rewards - but only if you pay your balance in full.

  • Student Loans: Often necessary for education, but important to manage carefully.

  • Auto Loans: Help make essential purchases more accessible, especially when cash isn’t an option.

  • Mortgages: A powerful wealth-building tool when used wisely.

  • Medical Bills & Personal Loans: Sometimes unavoidable and knowing how to manage these is critical.


Understanding Your Credit Score & Report


Your credit score and report are at the heart of how lenders view you, and they can determine what financial opportunities are available to you.


To make this a little more relatable, we use a dating analogy:

  • Your credit report is your dating history - a record of every account you’ve had, how long they’ve been open, and how you’ve managed them.

  • Your credit score is your reputation as a partner - a quick summary of how trustworthy and consistent you’ve been.


Here’s how your score is calculated:

  • 35% Payment History – Are you reliable with your payments (aka do you show up on time)?

  • 30% Amount Owed – Do you keep balances low relative to your limits?

  • 15% Length of Credit History – How long have your accounts been open?

  • 10% New Credit – Are you opening too many accounts too quickly?

  • 10% Credit Mix – Can you manage different types of credit?


You can - and should check your credit report once a year for free at annualcreditreport.com. It’s the only official source, and it won’t cost you a thing.

For even more clarity, download our Credit Score Basics!


Credit Cards vs. Debit Cards: What You Need to Know


Credit and debit cards may look the same, but they work very differently:

  • Debit cards withdraw money from your bank account instantly.

  • Credit cards borrow money from the issuer, allowing you to build credit and earn rewards.


Credit cards can offer major perks like cashback, points, travel insurance, and even monthly credits, but only if you’re paying off your balance in full each month. Otherwise, interest charges can quickly outweigh the benefits.


To help you get started the smart way, check out our Smart Swipes: 8 Credit Card Basics to Know Before You Apply.


Thanks to our sponsor:



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Visit our website for articles, resources, and more at www.liveyourmoneystyle.com



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