A credit score is a number that lenders use to establish the risk of lending money to a certain borrower. Credit card companies, auto dealerships and mortgage bankers are three familiar examples of types of lenders that will check your credit score before determining how much they are eager to lend you and at what interest rate.

Payment History: The most significant component of your credit score looks at whether you can be trusted to repay money that is lent to you. It accounts for 35% of your credit score and considers the following factors:

Have you paid your bills on time for each and every account on your credit report? Paying bills late has a negative effect on your score. If you've paid late, how late were you- 30, 60, or 90 + days? The later you are, the worse it is for your score. Also, have any of your accounts gone to collections? This is a red flag to prospective lenders that you might not pay them back. Do you have any charge offs, debt settlements, bankruptcies, foreclosures, suits, wage attachments, or judgments against you? These are some of the worst things to have on your credit report from a lender's viewpoint.

Amounts Owed: The second-most important component (which accounts for 20%) of your credit score is how much you are in debt. It looks at the following factors:

How much of your total available credit have you used? Less is better, but owing a little bit can be better than owing nothing at all because lenders want to see that if you borrow money, you are responsible and financially stable enough to pay it back. How much do you owe on specific types of accounts, such as mortgage, auto loans, credit cards and installment accounts? Credit scoring software likes to see that you have a combination of diverse types of credit and that you manage them all correctly. Finally, how much do you owe in total, and how much do you owe compared to the original amount on installment accounts? Yet again, less is better.

Length of Credit History: Your credit score also takes into consideration how long you have been using credit. How many years have you been using credit for? How old is your oldest account, and what is the average age of all your accounts? An extensive history is useful (if it's not flawed by late payments and other negative items), but a short history can be fine too as long as you've made your payments on time and don't owe too much. The length of credit history makes up for about 15% of your credit score.

New Credit: 10% of the FICO score is concerned with how many new accounts you have. It looks at how many recent accounts you have applied for and when the last time you opened a new account was. The score supposes that if you've opened several new accounts recently, you could be a greater credit risk; people tend to open new accounts when they are experiencing cash flow problems or planning to take on lots of new debt.

Types of Credit in Use: The finally 10% that the FICO formula considers in establishing your credit score is whether you have a mix of different types of credit, such as credit cards, store accounts, installment loans and mortgages. It also looks at how many total accounts you have. Since this is a small part of your score, do not worry if you do not have accounts in each of these categories, and don't open new accounts just to increase your mix of credit types.

Following these certain guidelines will help you maintain a good score or improve your credit score:

• Watch your credit utilization ratio. Keep credit card balances below 15-25% of your total available credit.
• Pay your accounts on time, and if you have to be late, do not be more than 30 days late.
• Don't open lots of new accounts all at once.
• Check your credit score about six months in advance if you plan to make a major purchase that will require you to take out a loan, like buying a house or a car. This will give you time to correct any possible errors and, if necessary, improve your score.

Whereas your credit score is very important in getting a loan granted and obtaining the best interest rates available, you don't need to preoccupy over the scoring guidelines to have the kind of score that lenders want to see. Typically, if you manage your credit responsibly, your score will stand out.