A credit score is a number that potential lenders will use to determine whether they should lend you money, how much, and at what interest rate.

Your credit score is an actual number between 300 and 850. The higher the number, the better: a score of 730 to 799 is considered very good, though the average is closer to 700.

Each of the three main credit agencies – Experian, Equifax, and TransUnion – have a score for you based on your credit report at that individual agency. Each agency has more than 200 million files on people who have a credit history because they have used credit, and 4.5 billion records in those files are updated monthly. The agencies tend to have different information on the people they track, which means your credit report and score may vary from agency to agency. If you have a question about your credit report, ask your loan officer what credit model they use.

Those scores are what potential creditors, landlords, employers, and insurers look at for an instant judgment on your creditworthiness.

That’s important because lenders believe that people who are creditworthy will pay back what they owe. That’s why better credit reports and higher credit scores make borrowing easier and cheaper. It also makes it easier to rent an apartment, buy a house, get insurance, and do several other day-to-day essentials.

Sources of Data

Credit scores are the result of a compilation of several different sources of data that are available in your credit report. That data falls into four distinct categories, which are listed in order of how much weight they usually have in informing your score:

• Payment history
• Amounts owed
• Length of credit history
• Types of credit used

You’ve heard before that paying credit card bills on time is crucial – and the list above is why. Your payment history – if you pay on time, if you pay in full or only the minimum balance, and if you have late or missed payments – is the single most important factor in determining your credit score.

Avoiding a Bad Score

There are two ways to have a bad credit score. The first, not surprisingly, is not using credit wisely. That means spending more than you can afford, not paying your bills on time, and having too much outstanding credit, often spread across multiple credit card accounts.

The second is not as intuitive but still a factor: you can have a bad credit score if you don’t use credit. In order to determine your score, there needs to be some history to base it on. So simply cutting up your credit cards or never having a credit card account isn’t the path to a high credit score.

What Doesn’t Count

One important thing to know about credit scores is that the information is limited to how you use credit. There is no information about your race, religion, medical history, or lifestyle. There’s not even any data on your checking and savings accounts or your investment accounts. It’s all about how you use credit.