The Five Parts of Your FICO Score

In order to make sure your credit score is as high as it can be, you need to understand how it is calculated. Drawing from the financial history contained in your credit report, credit scores are based on the FICO method of score analysis and calculated by the Experian, TransUnion, and Equifax, the three credit reporting agencies in the U.S.

Can you improve your credit score? Absolutely. Even if you're struggling with a less than perfect credit history and a low credit score, you can take the financial steps necessary to raise your credit rating. But before you can begin, you'll need to know what five areas from your credit report impact your credit score. Here are the basics about each score component:

Your payment history

Because it represents 35 percent of your credit score, the most significant aspect of your credit history is whether or not you've made payments on time for your bank loans, credit cards, finance company and other credit accounts. A perfect record of making payments on time will greatly increase your credit score. Conversely, if you've been late -- even on a single credit card payment -- your score will likely drop.

How much you owe on your accounts

Millions of Americans carry balances on their credit cards from month to month, but owing money to your lenders will quickly lower your credit score. Calculating the total amount of money you owe on all of your accounts, how much of your credit lines you've used (it's wise to keep your balances at less than half of your credit lines), and how many of your accounts carry a balance, constitutes 30 percent of your credit score. For this reason, if you can pay more than the monthly minimum payment due on your accounts in order to lower your balances, you'll see improvement in your credit rating.

How long you've had credit

This ten percent portion of your credit score calculation simply measures how long it's been since you established your credit history by opening credit accounts and how long it's been since you last used your accounts.

If you've opened new credit accounts

The final ten percent category of your credit score is based on if you've opened new credit accounts in recent months, the amount of time since you opened the accounts, and how many inquiries appear on your credit report as a result of applying for credit. Because lenders view consumers who acquire many new accounts as less creditworthy customers, opening new accounts may well lower your credit score and make it harder to be approved for new credit.