If you're in the market for a new home, or trying to obtain any type of loan, you have probably had some experience with the credit scoring system. Each of the big three reporting agencies (Experian®, Trans-Union®, Equifax) all have different scoring models, but they all mean the same thing.

Credit scoring, sometimes referred to as a FICO score (The software used to calculate various credit scores was created by Fair Isaac Corporation--FICO®) -- can help you understand your overall credit rating and help companies better decide whether or not they'll loan you money.

Some noticeable benefits of credit scoring include sharp reductions in human error and bias, faster credit approvals, and better rates for consumers through reduced costs for lenders.

Lenders use your credit score to help them determine whether or not you should be issued a credit card or a loan, and what terms you'll receive. Your score is based on the combination of your positive, negative, and potentially negative factors on your credit report. The more positive factors you have, the higher your credit score.

As a guide, credit scores are calculated according to the approximate values of each of the following:

• - Payment History
• - Total Amounts You Owe
• - Types of Credit Being Used (Installment, Revolving, etc.)
• - Length of Your Credit History (In years)

Below are the top factors (listed in order of importance) that can help raise your credit scores:

• Pay your bills on time. Do not have any overdue accounts or derogatory information, such as a collection, bankruptcy, or charge-off on your report.
• Keep your average credit limit for any major credit cards, such as VISA, American Express, or MasterCard, as high as possible. For example, if you have a credit card with a $1000 limit, the balance you owe should be low (if not $0) and never close to the $1000 limit. This shows lenders that you have enough financial experience to handle extended credit, and they will be more likely to view you as a good credit risk.
• Don't close major accounts. Keep at least 2 or more open major credit cards, such as VISA or MasterCard on your credit report. This tells lenders that you are a responsible borrower and not a potential "flight risk" when debts are paid off.
• When you check your credit reports, make sure your credit file shows no record of current delinquencies on large accounts, such as a mortgage or auto loan.

Keep in mind that lenders always look at your credit score to determine creditworthiness whenever you seek to make large purchases.

For good measure, listed below are the top factors (in order of importance) that will surely lower your credit scores. Avoid these at all costs:

• If at least one or more of your accounts has a balance that is close to your credit limit, your score will be lowered. When you have high balances, it may indicate to lenders that you are likely to overextend yourself.
• Having an installment loan (such as an auto loan) isn't bad, but having too many installment loans can drop your score considerably since these types of loans carry fixed monthly payments. Fixed payments are often viewed by lenders as negative because they may affect your ability to meet other loan obligations during any given month.
• Too much revolving debt. Credit card debt is the number one financial problem for young people in the U.S., and it also negatively affects your credit score. If you must have credit cards, keep the number of cards to a minimum (preferably 2) and keep their balances low.

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