Most consumers do not know how their credit score is figured out. It is not the most difficult thing in the world, but what makes it a little hard to understand is that it can constantly change every month based on your debts, payments and credit activity.

There are many resources to help you maximize your credit score, but overall, you should be responsible over time. You would be amazed how much money you can save by managing credit responsibly over time.

Your credit score is based on 5 major categories:

The majority of the score (35%) is based on your payment history. Lenders and banks want to see how well you pay your bills each month. Your Credit Score is affected by how many bills have been paid late and how many were sent out for collection.

The next biggest factor (30%) that affects your score is your current debt. How much do you owe on your home, on your car, on your credit cards, etc. Ideally you want to keep your credit card and any lines of credit at 25% or less of their total limits. If it is higher, it starts to lower your credit score.

15% of your credit score is based on the length of time you've had credit, or loans, or credit cards. Again, lenders and banks get to see a longer payment history if you have had credit for a longer amount of time. They view your past payment trends as good sources of guessing how you will do making payments in the future.

The Type of credit that you have is also important, but only makes up about 10% of your credit score. What is looked at is how many loans, credit cards and available credit you have at your disposal, listed in your Credit Report. Having too little or too much could hurt your credit score.

Finally, the last 10% of your credit score is determined by the number of inquiries on your credit report. If you apply for a lot of credit cards, department store cards or loans, these finance companies will check your credit report and show up as inquiries. Credit inquires hurt your credit score because they signal that you may have financial trouble or that you are planning on adding loans and debt. The more recent these inquiries, the more they can damage your credit score.  

The good news is that your credit score is NOT affected when you check your own Credit Report and Score.