The developer of modern credit scoring models is Fair Isaac Corporation (FICO). Although the exact calculation used to determine your credit score may never become public knowledge, patterns have emerged which provide clues to the mysterious calculation. Industry sources believe that they divide portions of your credit history from the three major credit bureaus into five main categories. Your scores are computed from up to twenty-two different bits of data in your credit report.

Proprietary formulas divide the relevance and significance of the information into a final score. Typically, it is calculated as follows:

• 35% based upon payment history
• 30% based upon the amount of debt you are carrying
• 15% based upon verifiable length of payment history
• 10% based upon recent credits
• 10% based upon types of credit being used (installment versus revolving)

It is unclear how much score is given to paying your mortgage on time compared to paying your car or credit card duly. It is interesting to note that your current income and employment history do not directly affect your credit score, since the credit bureaus do not have access to this information.

Types of Credit

There are two main types of credit available to consumers:

• Revolving credit. This type of credit is continually targeted to the maximum as long as the balance is paid down according to the payment schedule. You may either repay minimum amount each month or pay off more or pay the outstanding debts to avoid finance charges. There is no fixed schedule of both payments and the amounts of payment. Credit cards which normally carry a maximum amount that you can borrow against are considered to be the most common revolving accounts.
• Installment credit. This type of credit is granted in a lump sum and is paid back over a specified time in gradual payments, and may carry a fixed or variable interest rate. Even if the balance is paid off it does not replenish. The examples of installment credit are home mortgages and automobile loans.

How to Build Your Credit

• Use your credit card frequently but lightly in order to build your credit. Also try to keep your balance lower than 30% of your total available credit line every month. This will establish your ability to manage your credit and to continually pay off the balance. Charges that are greater than this level will not increase your credit score. MasterCard or Visa credit cards contribute a great deal to your score. Credit cards from stores will not increase your score significantly, but being easy to obtain they can help you to make the first step.
• Installments loans help a great deal to build your credit score. Installment loans can be unsecured or secured with collateral. Home mortgages secured by the house and real estate will make your score go up if the payments are made according to the schedule.
• An auto or student loan is also a good way of getting started on building a good rating. As a rule, these types of loans are used for expensive items that would not normally qualify for most credit cards. Such loans contribute a lot to your credit score.
• Your payment history is perhaps the most significant factor affecting your credit rating. If you fail to make the payments on time your score will see a very significant drop. This causes both difficulties in getting any new credit and higher interest rates.

Credit Scores

Credit scores are used by most creditors to determine how much credit you might get, and how much you will have to pay for it as well as the risk in lending to you. The best scores get the best credit card interest rates The difference between a good credit score and a so-so score might mean as much as 5% in the interest rate you may be offered. Credit scores range from 300 to 850 with higher scores indicating better credit histories. This allows lenders to quickly determine your creditworthiness. Typically, a measurement of 620 is the dividing line between prime credit (lower interest rates) and sub-prime(much higher rates). If the score is low enough, borrowing may be virtually impossible. To check your score contact one of the credit reporting agencies such as Experian or Equifax.

Useful tips to maintain a good credit rating:

• Pay all your bills in a regular, timely manner following the creditor's terms and conditions.
• Try to pay your bills ahead of time since it reduces the total interest rate.
• Do not overextend your credit obligations beyond what you need to maintain the lifestyle you can afford.
• Plan your purchases of large ticket items so that you are not simultaneously burdened with multiple loans.

Typically, a measurement of 620 is a break point for many lenders. So try to keep to sound debt management and to hover above this number. The current median score in the United States is 723.