The Real Cost of Paying Only the Minimum
A $5,000 credit card balance at 22% costs $8,680 in interest if you pay $100 a month. Raise it to $150 and the same balance costs $2,800 and clears seven years sooner. Here is the arithmetic.
How Credit Scores Are Actually Calculated
Five factors, with published weightings, explain almost everything about a credit score. Most of the advice circulating about them is wrong, and some of it actively lowers your score.
The short version
- Payment history (35%) and amounts owed (30%) drive two-thirds of a FICO score. Everything else is detail.
- Utilisation — how much of your limit you use — is measured at the moment your statement is issued, not at your due date.
- Closing an old card can lower your score by cutting your total limit and eventually your average account age.
- Checking your own score is a soft search and never affects it.
Credit scoring is unusually transparent for a financial system that affects so much. FICO, whose scores are used in the large majority of US lending decisions, publishes the weighting of the five factors that make up the score. VantageScore uses similar inputs with different weightings, and credit reference agencies outside the US run their own models on comparable data.
The numbers below are FICO's published weightings. The principles behind them apply broadly, even where the specific model differs.
The five factors
| Factor | Weight | What it measures |
|---|---|---|
| Payment history | 35% | Whether you have paid on time, how late, how recently, how often |
| Amounts owed | 30% | Balances relative to limits, on each card and overall |
| Length of credit history | 15% | Age of oldest account, newest account, and the average |
| New credit | 10% | Recent applications and recently opened accounts |
| Credit mix | 10% | Whether you handle both revolving credit and instalment loans |
Payment history — 35%
The single largest factor, and the one with the least nuance: pay everything on time, every time.
A payment is generally not reported to credit bureaus until it is 30 days late, so being a few days behind will typically cost you a late fee from the lender without appearing on your credit file. Once reported, a late payment stays on the file for years — commonly seven in the US, six in the UK — although its impact fades as it ages.
Severity matters too. A single 30-day late payment is damaging; a 90-day late, a default, a charge-off or a court judgment is far worse and takes far longer to recover from. If you can only pay one thing this month, pay the minimums on everything before paying extra on anything.
Amounts owed — 30%
This is mostly credit utilisation: your balances as a percentage of your limits.
The timing detail that catches everyone out
Most card issuers report your balance to the bureaus on your statement date, not your payment due date. So you can pay in full every month, never owe a cent of interest, and still show 80% utilisation — because the statement was cut before you paid. The fix is to pay down the balance before the statement date, or make a mid-cycle payment. This single adjustment moves some people's scores by tens of points without changing their spending at all.
Both overall utilisation and per-card utilisation are considered, so one maxed card is a problem even if your total is low. Below 30% is the conventional guidance; below 10% is better still. Reporting 0% on every card is marginally worse than reporting a small balance, because the models want evidence that credit is being used and repaid.
Length of credit history — 15%
Three measures: the age of your oldest account, the age of your newest, and the average across all of them.
This is why closing an old card is often a mistake. It removes the limit immediately, which raises your utilisation, and eventually removes the account's age from the calculation. A card you never use costs you nothing to keep open — put one small recurring payment on it and set it to pay automatically in full.
New credit — 10%
Each formal application leaves a hard search visible to other lenders, typically for a year or two, with most of the score impact in the first few months. One application is a minor effect. Six in a month reads as financial distress.
Rate shopping is treated differently: multiple enquiries for the same type of loan — a mortgage, a car loan — within a short window are usually counted as a single enquiry, so comparing lenders is not penalised. The window varies by model, commonly 14 to 45 days.
Credit mix — 10%
Models like to see that you can handle both revolving credit (cards) and instalment credit (loans with fixed payments). This is the least actionable factor, and the correct response to it is to do nothing: taking out a loan you do not need to improve your mix costs more in interest than the points are worth.
What is not in your score
A surprising amount, and knowing it saves worry:
- Your income, savings balance or net worth.
- Your employment status or job title.
- Your age, marital status, nationality or where you live.
- Debit card use, or how much you spend from a current account.
- Checking your own report or score — this is a soft search and has no effect whatsoever.
- Your partner's credit history, unless you hold a joint account or a financial association with them.
Lenders do consider income and employment. They simply assess those separately from the score, using your application and their own affordability rules.
How to improve a score, in order of effect
- Set every minimum payment to autopay. This protects the 35% factor permanently and eliminates the most damaging failure mode.
- Reduce reported utilisation. Pay before the statement date, or ask for a limit increase (a soft check with most issuers, but confirm first). Lower utilisation shows on your next reported balance, so the effect arrives within a month or two — faster than any other lever.
- Stop applying for credit for six months if you have applied recently.
- Keep old accounts open with minimal activity.
- Check your report for errors. Incorrect late payments, accounts that are not yours, duplicate entries and unclosed settled debts are all common, and all disputable free of charge with the agency.
- Wait. Time repairs credit files. There is no legitimate way to remove accurate negative information before it ages off.
Credit repair companies
No company can remove accurate, correctly-reported negative information from your credit file. Anything that can be done — disputing genuine errors, adding a statement of correction, negotiating with creditors — you can do yourself, free, in an afternoon. Be especially wary of any firm asking for payment before doing anything, which is illegal in some jurisdictions.
If you have no credit history at all
A "thin file" is not the same as a bad score — there is simply not enough data to score you, which can be just as much of an obstacle. The standard routes in:
- A secured card, where you deposit a sum that becomes your limit, used for one small monthly purchase and repaid in full.
- A credit-builder loan, where payments are held in an account and released at the end.
- Becoming an authorised user on the card of someone with a long history of on-time payments.
- Registering on the electoral roll where that is used for identity verification, as in the UK.
- Services that report rent or utility payments to bureaus, where available.
Expect six to twelve months before a meaningful score exists, and do not open several accounts at once trying to speed it up.
Common questions
Why is my score different on different sites?
Because you have many scores, not one. Different models — FICO, VantageScore, an agency's own — run on data from different bureaus, which do not all hold identical records. Lenders may also use industry-specific versions tuned for car loans or credit cards. Treat any single number as an indicator of the direction you are moving in, not as a precise figure a lender will see.
Does closing a credit card help my score?
Usually the opposite. Closing an account removes its limit from your utilisation calculation immediately — if you close a card with a $5,000 limit and no balance, your utilisation across everything else rises overnight — and over time the account's age drops out of your history. Close a card only if it charges a fee you do not want to pay, or if keeping it genuinely tempts you to spend.
How long does it take to recover from a missed payment?
A single 30-day late payment typically has its largest effect in the first year, fades noticeably after two, and drops off the file after six or seven depending on the country. Serious defaults, charge-offs and judgments take the full reporting period. During that time, consistent on-time payments on everything else are what rebuild the score — there is no faster route.