Most lenders use credit scores to determine your creditworthiness. Your credit score is computed by using mathematical formulas that analyze your ability to pay. These formulas are backed up by the amount and sorts of debt you owe. This information is analyzed and then compared with other borrowers credit history. So, this is how your credit score is calculated.

Credit scores are designed for the lenders to determine their risk in lending to you. Score calculation involves various factors of your financial picture.

The exact formulas how to compute credit score are kept a secret by all the three credit bureaus. However, the components and the approximate weighted contribution of each component have been disclosed by the Fair Isaac Corporation. Typically, the score is calculated as follows:

• Approximately 35% based on payment history. To get a better credit score you should have timely payment pattern of your past credit accounts. More weight is applied to recent payments as compared to past payments. However, the overall good credit picture has more significant impact than a few late payments, which have less impact over time unless the late payment is a mortgage payment.
• 30% based on the amount of outstanding debts you are carrying.Having credit accounts and owing money doesn't mean you will have trouble borrowing money. However, if you owe a lot of money on many accounts, the potential lender may think that you have a financial gap. That is why part of the science of calculating a credit score is tasked with determining how much debt is too much for obtaining a good credit profile.
• 15% based on length of credit history. A longer payment history will improve your credit score. However, it does not mean that if you have a short credit history you will not be given a high score. With your responsible credit management your score will see a quick increase anyway.
• 10% based on recent applications. Recent inquiries for, or newly opened, credit accounts will have a negative impact on your credit history. FICO scores will distinguish between a search for a single loan and a search for many lines of credit, in part by the length of time over which inquiries occur. If you want to obtain a loan, do your rate shopping within a focused period of time, such as 30 days. It will help to evade your credit score deduction.
• About 10% of your score is acquired from a few minor factors that can influence your score. For example, your credit mix. The more diversified it is (mortgage, car loan, cards, etc) the better score you get.

Your scores are computed from many different bits of data in your credit report and from different creditors. So it is natural that each credit agency may give different score to the same person since each agency collects their information. Even if the information is collected from the same lenders, it does not mean it is updated at the same times. Many creditors prefer to use score information obtained from all the three agencies to get a more accurate picture.

Computing your credit score is not an exact science but the above-mentioned factors will provide you with useful knowledge of what influences your score. You should be sure to use all the tools that you have and learn as much as you can about how to improve your credit score.