Your Credit Score

Have you ever wondered how you qualified for a loan? Or why you didn't? Or why you ended up with an interest rate higher than the one advertised?

Many of the financial steps you take are tracked and used to calculate your credit score, a three-digit number ranging from 300 to 850. The higher the number, the more likely you are to get the credit you want – and at a desirable rate.

Creditors consult credit scores to assess whether or not loaning you money is worth the risk. Generally, 700 is considered a good credit score. A score below 600 may put you in a "high risk" category.

What Determines Your Credit Score

A variety of factors determine a credit score. One of the most important is your payment history, which accounts for approximately 35 percent of your credit score. This summary of payments on past and current debts details all of your reported credit accounts and if payments were on time or late, including by how many days, or not made at all.

Another important factor, at about 30 percent, is your amount of debt. This is more than a total of all debt you owe; it also includes the number of reported accounts with outstanding balances and how much available credit you've used. The total debt is compared to the total credit available to determine your debt-to-credit ratio. Your credit score can suffer if those two numbers are too close together.

Your credit score also takes into account the number of years you've used credit. This factor isn’t weighted as heavily – it tends to be about 15 percent of your credit score – but it shows that establishing good credit early is wise because a longer credit history can positively impact your credit score. A high score may be possible with a short credit history if you've used credit responsibly.

The final and least-weighted factors are new credit and what are loosely referred to "other factors." Although both account for just around 10 percent of your credit score, they should not be treated lightly.

Credit inquiries to transfer a balance to a credit card with a lower annual percentage rate or opening new credit to receive a percentage off your total purchase at your favorite retailer can lower your credit score in the short term. "Other factors" include having a mixture of credit types, such as credit cards, auto loans, and home mortgages. This diversification of credit is good for your credit score and common for those with long credit histories.

What Doesn't Determine Your Credit Score

It's important to note that your credit score isn't based on discriminating factors, such as race, gender, marital status, religion, age, salary, employment, or where you live.

Your credit score, along with all of the reported account information used to determine it, is contained in your credit report. Three national reporting agencies, or credit bureaus, track credit scores and compile credit reports: Equifax, Experian and TransUnion. Your credit score and report may vary by agency, depending on the information each has received from lenders.

What Is On Your Credit Report

Besides financial information and your Social Security number, a credit report contains personal details that lenders update, such as your name, address, date of birth and employer. It also details items of public record, including bankruptcies, foreclosures, lawsuits, and wage attachments, as well as actions by collection agencies.

Remember, it's important to monitor your credit report periodically. Understanding your credit score is only your first step to financial success: You also must ensure the information on your credit report is accurate and up-to-date if you want it to help you get the credit you need.