There are three main credit bureaus -- Transunion, Experian, and Equifax -- that give you a grade on your credit-worthiness according to what your creditors report to them.

While each of these three bureaus may have some small variables that differentiate their scoring, the FICO scoring model is still the heart. FICO stands for Fair, Isaac and Company, the group that designed the model. Here is how they say your score breaks down:

1. PAYMENT HISTORY

   Payment history is the most important part of a credit score. It is worth 35% of your overall credit score. According to myFico.com, "payment history" includes:

   • Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
   • Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
   • Severity of delinquency (how long past due)
   • Amount past due on delinquent accounts or collection items
   • Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
   • Number of past due items on file
   • Number of accounts paid as agreed

   Most delinquencies aren't reported to the credit bureaus until after they are 30 days late. This allows for a small grace period. What's valuable to know is that delinquencies which occurred within the past 2 years are of greater weight than older items.

2. AMOUNTS OWED

   This is the amount owed on current debts, loans, and credit cards is the second most heavily-weighted part of the FICO credit model – it is worth 30%.

   According to myFico.com, "amount owed" includes:

   • Amount owing on accounts
   • Amount owing on specific types of accounts
   • Lack of a specific type of balance, in some cases
   • Number of accounts with balances
   • Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
   • Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

   If you have a $30,000 credit limit, and you are "maxed out" with $30k in debt, it can have a negative impact on your credit score. If you have no balance, however, the FICO scoring model says you know how to manage credit, and your score goes up. The ideal amount to owe on your credit cards is ZERO! But if that's not possible, the best way to manage this is to share balances across multiple cards, so that your proportions of amount-owed to credit-limit are as low as possible for every card.

3. LENGTH OF CREDIT HISTORY

   The length of credit history is worth 15% of your overall credit score.
   According to myFico.com, "length of credit history" means:

   • Time since accounts opened
   • Time since accounts opened, by specific type of account
   • Time since account activity

   The longer your credit history, the better. But note that "time since account activity" also affects your score -- if an account is inactive for too long, it tells lenders that you're not going to keep using their credit line, and thus means a lower score. The best move is to make a purchase on each of your credit cards for gas or groceries at least once every six months (If a card goes longer than that without any activity, it may show up as “inactive”, and you don't get the points you might otherwise have received). Be sure to pay the balance due on these cards before the statement date. This way it will show activity and reflect a ZERO balance. Both are great for the credit score!

4. TYPE OF CREDIT

   According to myFico.com, inquiries or "types of credit" means:

   • Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

   For many people just starting out, credit cards are the only source of credit. The magic number of credit cards you want to have to maximize your score is 3 to 5. But be careful thought, not all types of credit cards will boost your score. High interest credit cards from finance companies like HFC may hurt your score because the scoring system looks at this type of account as a desperate move.

   Having a mortgage can a boost in your credit score (although it your score may dip at the first time you purchase a home since you have taken on a large debt and do not yet have a track record of making monthly payments).

5. NEW CREDIT

   New credit (including inquiries) amounts to 10% of your credit score, but can have a surprisingly large impact.

• According to myFico.com, inquiries or "new credit" include:
• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
• Re-establishment of positive credit history following past payment problems

When a business pulls your credit report, it is called a hard inquiry. Hard inquiries can affect your score anywhere from 2 to 50 points depending on other elements in their report. Someone with derogatory or very little credit will be penalized much more than someone who has great credit. Either way, if a borrower needs 5 to 10 points, a hard inquiry could make the difference in immediate loan approval.

According to myFico.com there are exceptions when you apply for auto and mortgage inquiries:

" Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you’re only looking for one loan. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry. In addition, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping."