Credit and Debt Basics

This is a plain-English guide to credit and debt in the United States: what is in a credit report and how to fix mistakes, how credit scores work, what a credit card really costs, how to build a payoff plan, what debt collectors may and may not do, and where to find honest help. Every rule and number links to the agency or law it comes from.

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• Free printables
• Sources: CFPB, FTC, DOJ, Federal Reserve

Credit reports: what they are and how to get yours free

A credit report is a record of how you have handled credit. Three nationwide credit bureaus, Equifax, Experian and TransUnion, collect it and sell it to lenders, insurers, landlords and some employers, who use it to decide whether to work with you and on what terms.¹

What is in a report

• Who you are: name, current and past addresses, date of birth and similar identifying details.¹
• Your accounts: credit cards, loans and other accounts that lenders report, with balances, limits and whether you paid on time. Not every creditor reports, but most bank cards, nationwide store cards and loans do.¹
• Inquiries: a list of who has pulled your report. Applying for new credit adds one.⁸
• Negative items: late payments, accounts sent to collections, and bankruptcy.^1,8

Accurate negative information does not stay forever. A credit bureau can report most of it for seven years and bankruptcy for 10 years.³ Nobody can legally remove accurate, current information early, no matter what they charge.²⁰

You also have a right to a free report from a bureau if a company took adverse action against you based on your report (ask within 60 days of the notice), if you are unemployed and plan to look for a job within 60 days, if you receive public assistance, if your report is wrong because of fraud, or if you have a fraud alert on file.¹

Read all three reports, not just one. Each bureau gets data from different sources, so the reports can differ.¹ Check them before you apply for a loan, an apartment, insurance or a job, and any time you suspect identity theft.

How to dispute an error on your credit report

Fixing a mistake is free. Both the credit bureau and the business that supplied the wrong information (the “furnisher,” such as a card issuer or collector) have to correct information that is inaccurate or incomplete.³ The usual advice is to dispute with both.⁵

Step by step

1. Pull the report that shows the error and mark the item. Note the report confirmation number if there is one.⁵
2. Gather proof: statements, payment confirmations, letters, a police or FTC identity theft report. Send copies, never originals.³
3. Dispute with each bureau that shows the error. All three take disputes online, by phone or by mail. By mail, include your full name, address and phone number, each item you dispute with its account number, why it is wrong, what you want done (removed or corrected), and a copy of the report page with the item circled.^5,3
4. Dispute with the furnisher too, at the dispute address it lists. If you cannot find one, call and ask for it.³
5. Send mail by certified mail with a return receipt and keep copies of everything.³

Addresses and phone numbers as published by the FTC.³ A bureau may also list a dispute address on your report itself; that one works too.

What happens next

• The bureau has 30 days to investigate and passes your evidence to the furnisher, which must investigate and report back.³
• If the furnisher finds the information is wrong, it must tell all three nationwide bureaus so they can fix it.³
• The bureau must send you the results in writing and, if anything changed, a free copy of your report. You can ask it to send the correction to anyone who pulled your report in the past six months, or in the past two years for employment.³
• A bureau can stop investigating a dispute it considers “frivolous or irrelevant,” but it must tell you and say why. Often it just needs more evidence.³
• If the investigation does not resolve it, you can ask that a statement of the dispute be included in your file and future reports.³

Credit scores: what goes into them

A credit score is a number, usually between 300 and 850, that predicts how likely you are to repay on time. It is calculated from what is in your credit report.^7,8 You do not have one score. Different scoring models, different bureaus’ data and even different days produce different numbers, and lenders use different scores for different kinds of loans.^7,9 Most lenders use a FICO score.⁸

The CFPB lists what scoring models typically weigh: your bill-paying history, your current unpaid debt, the number and type of accounts, how long they have been open, how much of your available credit you are using, new applications for credit, and whether you have had a collection, foreclosure or bankruptcy and how long ago.⁷

The two big scoring companies publish their own approximate weights. These are general guides from the companies themselves, not a formula you can compute, and the weights for any one person vary with what is in that person’s file.

Two details that surprise people. Inquiries from lenders monitoring your account or sending prescreened offers are not counted against you, and several mortgage inquiries in a short window often count as one.⁸ And you can get a score free from many card issuers and lenders, often on your statement, and from nonprofit credit and housing counselors.⁹ Be wary of “free score” offers that enroll you in paid monitoring.⁸

How to build (or rebuild) credit

1. Pay every bill on time. Most scores treat repayment history as the top factor. Autopay for at least the minimum and calendar reminders help.¹⁰
2. Keep balances low compared with your limits. The CFPB notes that experts advise using no more than 30 percent of your total credit limit. Moving all your balances onto one card, or closing cards, can raise your utilization.¹⁰
3. Let accounts age. A longer record of on-time payments helps.¹⁰
4. Apply only for credit you need. Many applications in a short time can look like financial trouble.^10,8
5. Check your reports and dispute errors.¹⁰
6. New to credit? Products built for this include secured credit cards and credit-builder loans.¹⁰ Becoming an authorized user on a family member’s well-managed card is another route some people use; ask the issuer whether it reports authorized users.

Credit cards: APR, minimum payments and fees

The APR is the yearly interest rate on a balance you carry. Card APRs are high: in the second quarter of 2026, the average rate at commercial banks on card accounts that were charged interest was 22.15%, according to the Federal Reserve.¹³ If your card has a grace period and you pay the full statement balance by the due date, you generally pay no interest on new purchases.¹⁴

Federal rules that protect cardholders

• Statements must be mailed or delivered at least 21 days before the payment is due.¹⁴
• Any amount you pay above the minimum must go to the balance with the highest APR first.¹⁸
• Your issuer must give you 45 days’ written notice before a rate increase or other significant change in terms.¹⁶
• A late fee or other penalty fee cannot be more than the dollar amount tied to the violation. For a late payment, that means the fee cannot exceed the minimum payment that was due.¹⁷
• An over-the-limit fee is allowed only if you opted in to over-the-limit transactions.¹⁹
• Monthly statements generally carry a “Minimum Payment Warning” showing how long paying only the minimum would take and what it would cost, next to the payment that would clear the balance in 36 months.¹⁵

Fees to watch

Annual fees, late fees, returned-payment fees, cash advance fees (cash advances often carry their own APR too), balance transfer fees and foreign transaction fees. Your card’s pricing table lists each one. Read it before you apply and again before you transfer a balance.

A debt payoff plan: avalanche or snowball

The FTC’s first piece of advice for getting out of debt is to build a budget from your bills and pay stubs, then call your creditors before a debt goes to a collector. Many will work out a lower payment, and some will accept less than the full amount.²⁰ Get any agreement in writing and keep it until the debt is paid.²⁰

Then list every debt (the debt list worksheet below does this) and pick an order for your extra money. You pay the minimum on everything, put every spare dollar on one target debt, and when it is gone, roll its payment into the next one.

More on this site: Debt snowball vs. avalanche, How to make a debt payoff plan, How to pay off credit card debt and the debt payoff tracker.

Dealing with debt collectors: your rights

The Fair Debt Collection Practices Act (FDCPA) and the CFPB’s Debt Collection Rule, known as Regulation F, set the rules for third-party debt collectors. They cover personal and household debts like credit cards, car loans, medical bills, student loans and mortgages, not business debts.^21,22

What a collector must tell you

Either in its first communication or within five days after it, a collector must give you “validation information”: its name and mailing address, the creditor’s name, the amount owed broken out to show interest, fees, payments and credits, what to do if you think the debt is not yours, and your rights.^21,24

If you dispute the debt in writing within the 30-day validation period, the collector must stop collecting until it sends you verification, such as a copy of the bill.²¹ Regulation F lets a collector assume you received the notice five days after it was sent (not counting weekends and federal holidays), and the 30 days run from there.²⁴ If you do not dispute in time, the collector may assume the debt is valid.²¹ That does not mean you admit it.

What to do when a collector calls

1. Talk to them at least once. The FTC suggests it, even if you think you do not owe the debt, so you can learn what it is.^21,20
2. Do not give personal or financial details until you have the validation information or know the collector. Fake collectors demand payment on debts you do not recognize, refuse to give a mailing address, and threaten arrest.²⁷
3. Write everything down in the collector contact log below: date, time, name, what was said.
4. Dispute in writing within 30 days if you do not owe it, or not all of it.²¹
5. If you owe it, pick which debt your payment goes to. A collector with more than one of your debts must apply your payment to the one you choose.²¹
6. Want them to stop? Mail a letter asking them to stop contacting you. After that they can only confirm they will stop or tell you about a specific action, like a lawsuit.²¹

If you are sued

Respond by the deadline in the court papers, yourself or through a lawyer. If you ignore it, the court can rule without hearing you and the collector may be able to garnish wages or freeze a bank account.^28,21 Many federal benefits, including Social Security, SSI and veterans benefits, are generally protected from garnishment except to pay delinquent taxes, child or spousal support, or student loans.²¹ Low-income households can look for free legal aid.²⁸

Reporting a collector

Report problems to the CFPB, the FTC at ReportFraud.ftc.gov, and your state attorney general. You can also sue a collector within one year of the violation. You can ask for damages such as lost wages or medical bills, and even without proven damages a judge can award up to $1,000 plus attorney fees and court costs. You may still owe the debt.²¹

Avoiding debt relief and credit repair scams

For-profit debt settlement companies offer to negotiate lump-sum payoffs for less than you owe. They usually tell you to stop paying your creditors and save into a special account, which brings late fees, penalty interest, collection calls and sometimes lawsuits, and many people drop out before every debt is settled.^20,29 Forgiven debt may also count as taxable income.^20,29

Credit repair follows the same pattern. Nobody can legally remove accurate, current information from your report; only time does that. Disputing debts you know are yours, using a different number in place of your Social Security number, or filing a false identity theft report is illegal.²⁰ Credit repair companies may not charge you before they help you, and must give you a written contract that spells out your rights, including a three-day right to cancel without charge.⁶ Anything a credit repair company can legally do, you can do yourself for little or no cost.⁶

Credit counseling: finding honest help

Credit counseling organizations, usually nonprofits, help with budgets, debts and credit reports, run money workshops, and can set up a debt management plan: you make one monthly deposit with the counselor, who pays your creditors. Creditors may agree to lower your interest rates or waive some fees.^30,20 A plan typically takes 48 months or more, and you may have to agree not to open new credit while it runs.²⁰

Where to look

• The CFPB points people to the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA), two networks of member agencies.³⁰
• The U.S. Trustee Program of the Department of Justice keeps a state-by-state list of approved credit counseling agencies.^31,30 If you are considering bankruptcy, the counseling has to come from an approved agency within six months before you file, and you take a separate approved debtor education course afterward.²⁰ Being on the list is not an endorsement.²⁰
• Credit unions, universities, Cooperative Extension offices and military personal financial managers also offer counseling.²⁰

Questions to ask before you sign

• What will you do for me, and what will it cost, in writing? Will you help if I cannot afford the fee?²⁰
• Are your counselors certified by an outside organization? Are you licensed in my state?²⁰
• Do you offer free education, budget help and more than one option?²⁰ If a counselor says a debt management plan is your only choice before reviewing your finances, find another counselor.²⁰

Nonprofit status alone does not mean low fees or honest service. Check any agency with your state attorney general and local consumer protection office.^20,30

Identity theft basics

Accounts you do not recognize on your credit report can be a sign that someone is using your information.¹ If that happens, go to IdentityTheft.gov, the FTC’s site for reporting identity theft and getting a personal recovery plan.^34,33 Its first steps: call the companies where the fraud happened, place a fraud alert and get your credit reports, and report the theft to the FTC.³⁴

From the FTC.³² To apply for credit while frozen, lift the freeze at the bureau the lender uses, then put it back.³² Parents can freeze the credit of a child under 16 for free.³²

Free printables

Three PDF forms sized for US Letter paper. Print them at home and fill them in with a pen.

Key terms

Each term links to its plain-English definition in our Personal Finance Glossary.

• Credit report
• Credit bureau
• Credit score
• Credit scoring model
• Payment history
• Credit utilization
• Length of credit history
• Credit mix
• Hard inquiry
• Soft inquiry
• Credit dispute
• Credit freeze
• Fraud alert
• Identity theft
• APR (annual percentage rate)
• Minimum payment
• Grace period (credit card)
• Late fee
• Balance transfer
• Cash advance
• Secured credit card
• Authorized user
• Debt avalanche
• Debt snowball
• Debt consolidation
• Debt settlement
• Credit counseling
• Debt management plan
• Collections
• Charge-off
• Debt collector
• Fair Debt Collection Practices Act (FDCPA)
• Fair Credit Reporting Act (FCRA)
• Statute of limitations on debt
• Wage garnishment
• Bankruptcy
• CFPB (Consumer Financial Protection Bureau)
• FTC (Federal Trade Commission)

For teachers and librarians

This page is free to link to, assign and print. There are no ads, no affiliate links and no sign-up, and nothing on it is sponsored. Each section has its own link (use the table of contents above), so you can point students straight to “Fixing errors on your report” or “Dealing with debt collectors.”

Cite this page (APA):Budget And Finances. (2026). Credit and debt basics: Credit reports, scores, debt collectors and a debt plan. https://budgetandfinances.com/credit-and-debt-basics/Copy APA

Cite this page (MLA):“Credit and Debt Basics.” Budget And Finances, 2026, budgetandfinances.com/credit-and-debt-basics/.Copy MLA

Classroom ideas: have students build a dispute letter for a made-up error with the builder above, compare avalanche and snowball for a made-up set of debts, or role-play a collector call using the contact log. Spotted an error or an outdated rule? Email hello@budgetandfinances.com and we will fix it.

Sources

Every rule and figure above is cited to the source below. 32 of the 34 sources are government sites or the official free-report site; the two credit scoring companies are cited only for their own published score weights.

1. Federal Trade Commission, “Free Credit Reports,” consumer.ftc.gov/articles/free-credit-reports
2. AnnualCreditReport.com, “AnnualCreditReport.com (the only site authorized to fill orders for the free reports required by federal law),” www.annualcreditreport.com/
3. Federal Trade Commission, “Disputing Errors on Your Credit Reports,” consumer.ftc.gov/articles/disputing-errors-your-credit-reports
4. Federal Trade Commission, “Sample Letter to Credit Bureaus Disputing Errors on Credit Reports,” consumer.ftc.gov/articles/sample-letter-credit-bureaus-disputing-errors-credit-reports
5. Consumer Financial Protection Bureau, “How do I dispute an error on my credit report?,” www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-on-my-credit-report-en-314/
6. Federal Trade Commission, “Fixing Your Credit FAQs,” consumer.ftc.gov/articles/fixing-your-credit-faqs
7. Consumer Financial Protection Bureau, “What is a credit score?,” www.consumerfinance.gov/ask-cfpb/what-is-a-credit-score-en-315/
8. Federal Trade Commission, “Credit Scores,” consumer.ftc.gov/articles/credit-scores
9. Consumer Financial Protection Bureau, “Where can I get my credit scores?,” www.consumerfinance.gov/ask-cfpb/where-can-i-get-my-credit-scores-en-316/
10. Consumer Financial Protection Bureau, “How do I get and keep a good credit score?,” www.consumerfinance.gov/ask-cfpb/how-do-i-get-and-keep-a-good-credit-score-en-318/
11. FICO (scoring company), “What's in my FICO Scores?,” www.myfico.com/credit-education/whats-in-your-credit-score
12. VantageScore Solutions (scoring company), “The Complete Guide to Your VantageScore,” www.vantagescore.com/resources/knowledge-center/the-complete-guide-to-your-vantagescore
13. Federal Reserve Board, “Consumer Credit, G.19 statistical release (terms of credit),” www.federalreserve.gov/releases/g19/current/default.htm
14. Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.5 (21 days between statement and due date),” www.consumerfinance.gov/rules-policy/regulations/1026/5/
15. Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.7 (Minimum Payment Warning on statements),” www.consumerfinance.gov/rules-policy/regulations/1026/7/
16. Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.9 (45 days' notice of rate increases and significant changes),” www.consumerfinance.gov/rules-policy/regulations/1026/9/
17. Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.52 (limits on fees),” www.consumerfinance.gov/rules-policy/regulations/1026/52/
18. Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.53 (allocation of payments),” www.consumerfinance.gov/rules-policy/regulations/1026/53/
19. Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.56 (over-the-limit opt-in),” www.consumerfinance.gov/rules-policy/regulations/1026/56/
20. Federal Trade Commission, “How To Get Out of Debt,” consumer.ftc.gov/articles/how-get-out-debt
21. Federal Trade Commission, “Debt Collection FAQs,” consumer.ftc.gov/articles/debt-collection-faqs
22. Consumer Financial Protection Bureau, “Debt collection (consumer tools),” www.consumerfinance.gov/consumer-tools/debt-collection/
23. Consumer Financial Protection Bureau, “Regulation F, 12 CFR 1006.14 (harassing conduct and call frequency),” www.consumerfinance.gov/rules-policy/regulations/1006/14/
24. Consumer Financial Protection Bureau, “Regulation F, 12 CFR 1006.34 (validation notice and validation period),” www.consumerfinance.gov/rules-policy/regulations/1006/34/
25. Consumer Financial Protection Bureau, “Regulation F, 12 CFR 1006.26 (time-barred debts),” www.consumerfinance.gov/rules-policy/regulations/1006/26/
26. Consumer Financial Protection Bureau, “Regulation F, 12 CFR 1006.30 (reporting a debt before contacting you),” www.consumerfinance.gov/rules-policy/regulations/1006/30/
27. Federal Trade Commission, “Fake and Abusive Debt Collectors,” consumer.ftc.gov/articles/fake-abusive-debt-collectors
28. Federal Trade Commission, “What To Do if a Debt Collector Sues You,” consumer.ftc.gov/articles/what-do-if-debt-collector-sues-you
29. Consumer Financial Protection Bureau, “What is a debt relief program and how do I know if I should use one?,” www.consumerfinance.gov/ask-cfpb/what-is-a-debt-relief-program-and-how-do-i-know-if-i-should-use-one-en-1457/
30. Consumer Financial Protection Bureau, “What is credit counseling?,” www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/
31. U.S. Department of Justice, U.S. Trustee Program, “List of Credit Counseling Agencies Approved Pursuant to 11 U.S.C. 111,” www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111
32. Federal Trade Commission, “What To Know About Credit Freezes and Fraud Alerts,” consumer.ftc.gov/articles/what-know-about-credit-freezes-and-fraud-alerts
33. Federal Trade Commission, “What To Know About Identity Theft,” consumer.ftc.gov/articles/what-know-about-identity-theft
34. Federal Trade Commission, “IdentityTheft.gov: report identity theft and get a recovery plan,” www.identitytheft.gov/

Educational information, not legal or financial advice. This page explains federal rules in general terms. State laws add their own rules, especially on debt collection and statutes of limitations, and your situation may call for a lawyer, a nonprofit credit counselor or a tax professional. Rules change; we last reviewed every source on October 5, 2026.