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Your borrowing and spending habits don't take place in a vacuum. Three major U.S. credit bureaus - equifax, experian, and TransUnion - track how you manage your credit. Financial institutions and other businesses rely on these companies to evaluate you as a borrower by looking at how much credit you have available, how much you owe, and how responsible you are about paying on time.

A credit report is an overview of your credit history, which documents how much money you've borrowed in the past and how good you are at repaying it. It also lists late payments, any bills referred to collection agencies, and any bankruptcies you declared. Your credit history is also the basis for your credit score, a number that rates your credit-worthiness based on past behavior and current debt. The higher your score, the more lenders see you as someone who's likely to repay their loan. No matter which bureau issues your credit report, it contains both your credit history and credit score.

Each credit bureau calculates credit scores differently, but the best-known and most widely used algorithm is the FICO method, devised by the Fair Isaac Corporation (a company founded by Bill Fair and Earl Isaac in 1956 and now known as FICO). FICO scores range from 300 to 850, and higher is better. Your FICO score gives you a quick snapshot of how lenders view you as a potential borrower.

What goes into your FICO score

Credit agencies figure your FICO score using several factors, and they assign each a particular "weight" in the final score (see the pie chart below). This section shows you what FICO takes into account.

Your payment history

Understandably, the most important factor in determining your credit worthiness is your reputation for paying back the money you've borrowed - it accounts for 35 percent of your FICO score and takes the following into account:

• Payment history for the different kinds of accounts you have. Paying at least the minimum amount and paying it on time works in your favor in these categories. These accounts may include the following:
  - Credit cards you get from banks, such as Visa, MasterCard, and American Express.
  - Credit cards you have with retail stores like Macy's or Sears.
  - Installment loans, where you pay off a balance in regular increments, such as a car loans or a student loan.
  - Consumer finance loans, which are subprime loans given out by companies that aren't banks. Consumer finance companies don't accept deposits, and they provide loans (usually at higher interest rates) directly to consumers who don't qualify for bank loans.
  - Existing mortgages (if any).
• Delinquencies. Missing payments for any of your accounts lowers your score. Your FICO score reflects:
  - How much is past due.
  - How long any delinquent accounts have been past due.
  - How many past-due accounts you have.
• How recently you've had delinquencies. If you ran into a rough patch in the past and couldn't meet your payments, you need to show that you've resolved the problem and have stayed current on your payments since then.
• Adverse public records. FICO scoring looks for signs of legal troubles, including bankruptcies, foreclosures, any judgments against you, liens, lawsuits, wage attachments, and so on. On the plus side, the score takes into account how much time has passed since the infraction, the amount of money involved, and how well you've met your financial obligations since then.
• Collection items. If a creditor sends your past-due account to a collection agency, it's a mark against you. Again, if this happened in the past, your score improves if your payments stay current since then.
• How many accounts you've paid as greed. Keeping the terms of an agreement with any creditor is important to your score.

Length of your credit history

The longer you successfully manage debt, the better a loan prospect you are; the length of your credit history counts for 10 percent of your credit score. You won't necessarily be penalized if you're new to the credit game - you can still get a high FICO score if these factors look good:

• How long you've had credit. Your score reflects how long you've had your oldest account and the average age of all your accounts.
• How long you've had specific kinds of credit. Showing that you can handle different kinds of credit over time - for example, a student loan plus a credit card or two - improves your score.
• How much time has passed since an account was active. A credit card account that's been inactive for a while carries less weight than a card you've used recently, even if you had the inactive card longer.

Your new credit

"New credit" comprises accounts you opened or loans you took out recently. From a lender's perspective, opening a lot of accounts over a short period of time is a red flag, so this kind of activity can lower your credit score. The new credit component of your FICO score weighs these factors:

• How many new accounts you have. If your wallet is bursting with lots of shiny new credit cards, you haven't yet proved that you can use those cards responsibly. This part of your score considers both the number of new accounts you have and the percentage of your overall credit history those new accounts represent.
• How many times your credit report has been requested in the past year. When you apply for credit and a financial institution requests your credit report, that request becomes part of your credit history. A large number of such requests in the recent past suggests that you may be getting ready to ramp up your debt - a warning sign that your score reflects.
• How much time has passed since you opened an account. FICO breaks this information down by type of account (revolving credit, installment loan, and so on).
• How much time has passed since a financial institution last requested your credit report. You don't want to look as though you've been turned down for credit or applied for credit on a whim, so the longer the interval between credit applications, the better. This part of your score takes into account only those requests you made in the past year.
• Whether you've corrected past problems. If you've run into trouble with past-due accounts or had other credit-related problems, you're not doomed to a low credit score forever. By managing your credit responsibly and paying on time, you can rebuild your creditworthiness and improve your FICO score. Raising a low score takes time, effort, and careful attention to managing your money, but you can do it.

Types of credit you use

The type of credit you have (bank credit cards, store cards, installment loans, mortgages, and consumer finance accounts), how many accounts of each type you have, and recent information about those accounts make up 10 percent of your score.

What your FICO score doesn't include

By now, you may feel like FICO shines a searchlight into every corner of your life. But there is information FICO doesn't factor into your credit score:

• Your race, religion, national origin, sex, or marital status. The federal government doesn't allow any credit bureau to factor this information into a credit score.
• Whether you receive public assistance. If you get help from the government to make ends meet, such as food stamps or housing assistance, credit companies can't factor that information into your score; the federal government prohibits it.
• Your age.
• Your salary, occupation, title, employer, date employed, or employment history.
• Where you live.
• The interest rate charged on a particular account.
• Child/family support obligations.
• Rental agreements.
• Certain kinds of requests for your credit report. Not all requests for your credit report get factored into your score. These are exempt:
  - Requests made by you to check your credit report.
  - Requests from employers or potential employers.
  - Promotional inquiries. You know those offers for preapproved credit cards that show up in the mail? You didn't apply for that credit - a lender was hoping you'd be tempted to apply.
  - Administrative inquiries. Sometimes a lender with which you already have an account will request your credit report while reviewing your account.
• Any information that's not found in your credit report. FICO scores information that's present in your credit report. It doesn't collect any information beyond what's in the report.
• Any information that is not proven to predict future credit performance. An example is your income. Although people with higher incomes may be better able to pay back debt, income alone is not a good predictor of whether you'll pay back a loan according to the credit terms you agree to.
• Whether you're getting credit counseling. The mere fact that you're getting credit counseling to better manage your debt cannot affect your FICO score. Be aware, though, that the situation that caused youto seek credit counseling (such as late payments or defaults) and actions that you take as a result of credit counseling can both affect your score.