Credit scores are based on a variety of factors, and changing any of these factors in your favor can improve your score.

By far the most widely used scoring system is FICO, from Fair Isaac Company. FICO scores have different names at each of the three credit reporting agencies. All of these scores, however, are developed using the same methods by Fair, Isaac, and who attempt, through rigorous testing to ensure they provide the most accurate picture of credit risk possible using credit report data.

Here’s what Fair Isaac has to say about the factors they use that determine your score:

What a FICO Credit Score Considers

The five main categories of information that FICO scores evaluate, along with their general level of importance, are listed below. Within these categories is an extensive list of the information that goes into a FICO score.

1. PAYMENT HISTORY - What’s your track record?
2. AMOUNTS OWED - How much is too much?
3. LENGTH OF CREDIT HISTORY - How established is your history?
4. NEW CREDIT - Are you taking on more and more debt?
5. TYPES OF CREDIT USE - Is it a "healthy" mix?

What is your track record?

FAIR ISAAC REPORTS THAT APPROXIMATELY 35% OF YOUR SCORE IS BASED ON THIS CATEGORY.

What every lender wants to know is whether you have paid past credit accounts on time. This is one of the most important factors in a credit score.

Late payments aren’t an automatic "score-killer." An overall good credit picture can outweigh a couple instances of late payments. Conversely, having no late payments in your credit report doesn't guarantee you a "perfect score." Some 60%-65% of credit reports show no late payments at all — your payment history is just one piece of information used in calculating your score.

The following factors are considered:

• Payment information on many types of accounts, including credit cards (such as Visa, & MasterCard), retail accounts (department store credit cards), installment loans (for instance, car loans), finance company accounts and mortgage loans.
  
  
• Public record and collection items — reports of events such as bankruptcies, foreclosures, suits, wage attachments, liens and judgments. These are considered quite serious. Older items and items with small amounts will count less than more recent items or larger amounts.
  
  
• Details on late or missed payments ("delinquencies") and public record and collection items — specifically, how late they were, how much was owed, how recently they occurred and how many there are. A 60-day late payment is not as bad as a 90-day late payment, in and of itself. But how recent the instance was, and the frequency count, too. A 60-day late payment made last month will count more than a 90-day late payment from five years ago.
  
  
• How many accounts show no late payments. A good track record on most of your credit accounts will increase your credit score.

Amounts Owed

How much is too much?

FAIR ISAAC STATES THAT APPROXIMATELY 30% OF YOUR SCORE IS BASED ON THIS CATEGORY.

Having active credit accounts and owing money on them does not mean you are a high-risk borrower with a low score. Owing a great deal of money on many accounts can indicate that a person is overextended, and is more likely to make some payments late or not at all. Part of the science of scoring is determining how much is too much for a given credit profile.

Your score takes the following into account:

• The amount owed on all accounts. The total balance on your last statement is generally the amount that will show in your credit report.
  
  
• The amount owed on all accounts, and on different types of accounts. In addition to the overall amount you owe, the score considers the amount you owe on specific types of accounts, such as credit cards and installment loans.
  
  
• Whether you are showing a balance on certain types of accounts. In some cases, having a very small balance without missing a payment shows that you have managed credit responsibly, and may be slightly better than no balance at all. On the other hand, closing unused credit accounts that show zero balances and that are in good standing will not generally raise your score.
  
  
• How many accounts have balances. A large number can indicate higher risk of over-extension.
  
  
• How much of the total credit line is being used on credit cards and other "revolving credit" accounts. Clearly, someone closer to "maxing out" on many credit cards may have trouble making payments in the future.
  
  
• How much of installment loan accounts is still owed, compared with the original loan amounts. For example, if you borrowed $10,000 to buy a car and you have paid back $2,000, you owe (with interest) more than 80% of the original loan. Paying down installment loans is a good sign that you are able and willing to manage and repay.

Length of Credit History

How established is yours?

FAIR ISAAC REPORTS THAT APPROXIMATELY 15% OF YOUR SCORE IS BASED ON THIS CATEGORY.

Generally, a longer credit history will increase your score. However, even people who have not been using credit long may get high scores, depending on how the rest of the credit report looks.

Your score takes into account:

• How long your credit accounts have been established, in general. The score considers both the age of your oldest account and an average age of all your accounts.
  
  
• How long specific credit accounts have been established.
  
  
• How long it has been since you used certain accounts.

New Credit

Are you taking on more debt?

ACCORDING TO FAIR ISAAC, APPROXIMATELY 10% OF YOUR SCORE IS BASED ON THIS CATEGORY.

People tend to have more credit today and to shop for credit — via the Internet and other channels — more frequently than ever. Fair, Isaac scores reflect this fact. However, research shows that opening several credit accounts in a short period of time does represent greater risk — especially for people who do not have a long-established credit history. This also extends to requests for credit, as indicated by certain "inquiries" to the credit reporting agencies, resulting from your requests for new credit. An inquiry is a request by a lender to get a copy of your credit report.

FICO scores do a good job of distinguishing between a search for many new credit accounts and rate shopping, which is generally not associated with higher risk.

Your score takes into account:

• How many new accounts you have. The score looks at how many new accounts there are by type of account (for example, how many newly opened credit cards you have). It also may look at how many of your accounts are new accounts.
  
  
• How long it has been since you opened a new account. Again, the score looks at this by type of account.
  
  
• How many recent requests for credit you have made, as indicated by inquiries to the credit reporting agencies. Inquiries remain on your credit report for two years, although FICO scores only consider inquiries from the last 12 months. Note that if you order your credit report from a credit reporting agency — such as to check it for accuracy, which is a good idea — the score does not count this, as it is not an indication that you are seeking new credit. Also, the score does not count requests a lender has made for your credit report or score in order to make you a "pre-approved" credit offer, or to review your account with them, even though you may see these inquiries on your credit report.
  
  
• Length of time since credit report inquiries were made by lenders.
  
  
• Whether you have a good recent credit history, following past payment problems. Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a score over time.

Types of Credit In Use

Is it a "healthy" mix?

FAIR ISAAC BASES APPROXIMATELY 10% OF YOUR SCORE ON THIS CATEGORY.

The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you don't intend to use. The credit mix usually won't be a key factor in determining your score — but it will be more important if your credit report does not have a lot of other information on which to base a score.

• Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
  
  
• What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
  
  
• How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
  
  
• Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
  
  
• How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.