Over the last couple weeks, we discussed who is looking at your credit file and what lenders are looking at. So, today, we’re going to tackle that beast of burden - your credit score. Knowing what impacts your credit score will help you figure out how to positively impact it (which we’ll manhandle next week) - and save you money.

The Basics. Your credit score is a calculated number that is used as shorthand for all the credit-related information that is relevant to you. The result is meant to compare you to tens of millions of other, providing a highly accurate prediction of whether you will pay your bills on time.

Each credit bureau calculates your credit score based on a wide variety of information that they collect from companies that you do business with or from whom you borrow money. While they all use the same model to calculate your score (known as the FICO model, named for the Fair Isaac Corporation that developed the model in the 1980s), each will likely have different information to put through the model. Therefore, each credit bureau might provide a different credit score for you, though, generally, they will be in the same general ball park.

Information Used To Calculate Score. The information that the credit bureaus use to calculate your credit score falls into five primary categories, with each being weighted in the calculation.

• Your Payment History. The focus here is on delinquent and adverse items as well as whether you paid your bills according to their terms. As you’d expect, your payment history is the most impactful, accounting for 35% of your credit score.
• The Amounts of Money You Owe. Also important is the amount you owe, which accounts for 30% of your credit score.
• The Length of Your Credit History. This element looks at how long you’ve had accounts open and comprises 15% of your credit score.
• The Number of New Credit Accounts Opened. Here, the number of new credit accounts and inquiries is consider, accounting for 10% of your score.
• Types of Credit Accounts. The algorithm looks at the types of credit accounts you have - revolving, student loans, installment loans, mortgages, which accounts for 10% of your score.

Timeframe. Your credit score is based on recent information. To calculate your score, your report must contain at least one account that has been open for at least six months and one account that has been updated in the last six months. This ensures that you are being rated based upon current information.

Even though you need current entries to be scored, most adverse entries will stay in your credit file for seven years (bankruptcies, though, can stay for ten years). Remember, though, that positive entries also are included over a long period of time. So, the more quickly you make positive changes to your credit history, the better off you will be as the impact of adverse items will diminish as time passes and you build a more positive credit file.

The Take-away. It’s important to know that one piece of information - positive or negative - will never tip the scales too much. Of course, a pattern of bad behavior - or good credit activities - is what creditors are looking for. So, over time, you should develop a broad range of information from which the score can be calculated. Diligence is key.

Don’t know your credit score? Use this Credit Score Estimator to approximate your credit score - free. You can also order a free copy of your full credit report each year from each credit bureau. Check out this site - it will handle free annual requests to each credit bureau.

Knowing what goes into your score will help you know how to build your credit. Check back next week when we provide helpful advice to positively impact your credit score.