There are a variety of factors a credit agency considers when determining your credit score. While the exact algorithms and computations are closely guarded by agencies, the basic formula is fairly well known.

The most important single factor in determining a credit score is a person’s payment history. Thirty-five percent (35%) of the determination is made by examining how well you make payments. If you consistently pay a good number of bills on time without being late, your score on this section will be higher.

If you have had bills sent to collection agencies, bankruptcies or unpaid bills, then your score on this section will be lower. The more recently you had a late payment, the more influence it will have on your credit rating.

The next most important factor is outstanding debt, which has a 30 percent bearing on your score. The most important aspect in this rating is the ratio of debt to possible debt. You should attempt to keep your debt at or below 30 % of your possible debt limits, and no more than 50 %. The ideal is to pay debt off altogether, where possible. Balances that are close to credit limits hurt credit scores.

The next factor considered with a 15% weight is the length of credit history. The longer you have had an account, the better your score is. For this reason, it is sometimes advisable to leave unused accounts open, at least as long as the credit companies will allow you to do so.

The recent inquiries on your report will have a 10 percent impact on your score. If you have “hard hits,” or inquiries initiated by you in a search for new credit, they will have a negative affect on your credit score. “Soft hits,” or inquiries initiated by companies wanting to offer you credit, do not negatively affect your score.

The type of credit you use also has an effect on your score. Specifically, loans from finance companies that specialize in high interest, high risk loans such as Beneficial Finance or American General, can cause you to have a lower score.

To improve your score, there are some simple steps you can take. First and most important, pay all bills on time. Even one or two late payments can have negative effects on your credit rating. Keep balances low on any revolving credit accounts (like credit cards or electronics programs), and pay off balances as quickly as possible. Avoid applying for credit except in cases when it is absolutely imperative.

The most obvious and immediate advantage to those with a high credit score is that they can receive favorable loan terms, especially for cars and homes.

When you are ready to make a major purchase, it’s a good idea to apply for pre-approval for a loan prior to deciding on a home or vehicle. When you do so, ask for your credit scores – whichever ones your lender uses.

Getting pre-approved from a certain lending institution does not obligate you to use that institution when you do decide on a home or car, and it gives you powerful tools in negotiating terms for borrowing.

Besides giving you leverage when you make an offer to purchase, having the FICO score also tells you what kind of loan terms you should be getting from lenders. Armed with that information, you can shop around and push lenders a little to get the favorable interest rate and other terms your FICO score indicates that you deserve.

Use a good score to your advantage. Over 30 years, even a half a percentage off in the interest rate can save you thousands.

Another key benefit you can get by knowing your high FICO score is help in negotiating car insurance rates.

Automobile insurers use a buyer’s financial history to set insurance rates, because their actuaries (statisticians who calculate numbers based on thousands of actual customers) tell them that those people who have a poor credit history also have a high risk of insurance loss.

This means that the rates for these individuals are generally higher than the rates for individuals with higher credit scores.

Even if you are in other high risk categories, if you have your high FICO score, you can again shop around to insurance agencies and promote your good credit score. Some agents will be able to adjust your rate more than others based on that factor, and it could help you find a lower rate.

Credit card companies also make heavy use of credit scores. They will generally pull a credit report or run an inquiry (which doesn’t affect your credit) before they even send you a free offer for a new card.

If you a apply for a card, they will request a FICO number. A higher number will mean better terms, such as a lower interest rate or higher credit limit.

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There are two types of inquiries that a bank, credit card company, or other potential loan originator can make on your credit score.

These are called either a “soft hit” (”soft inquiry,” “soft pull” or “soft credit check” are synonymous terms) or a “hard hit.” (again, “hard inquiry,” “hard pull,” and “hard credit check” mean the same thing).

These terms are not official technical terms, but are instead lender jargon used to refer to the groupings of credit inquiries. Any inquiry that was, generally, initiated by someone else and doesn’t necessarily indicate an intention on your part to borrow money is known as the soft hit.

On the other hand, a credit inquiry that does represent a fairly immediate intent to borrow money is known as a hard hit. These are sometimes called voluntary credit inquiries, because you generally initiated them when you went in to apply for a loan.

A soft hit generally does not affect your credit score. These hits occur when a credit card company wants to evaluate your credit score, or when you ask for a copy of your own credit report. Lenders do not see these inquiries when they pull a copy of your credit report, and they do not negatively affect your credit score.

The credit agencies generally consider it a soft hit when a credit agency is verifying information that you gave them by running a credit inquiry. Banks looking at account status are also considered to be soft hits.

A hard hit, however, will negatively affect your score, if only slightly. These hits generally mean you have gone into a lender, filled out an application and have requested credit. If you go to a variety of banks and credit unions to get preapproval from each for a car or home loan, then each inquiry will show up on your credit reports.

These hits negatively affect your credit scores, since the very time that you decide to increase your debt load by borrowing money, you become at least a slightly higher risk for not paying it back. Clearly, if you had no debt, you’d be a great risk for having no problems paying it back.

Because the higher the amount of debt, the more difficult it becomes to repay, the credit agencies adjust your score in advance to reflect this slightly higher risk.

It is extremely important to regularly get a copy of your credit report from each credit bureau so that you can see if there are any mistakes on those reports.

Even a simple mistake like the wrong address or even the wrong house number on your address can lead you to being turned down for a loan, even if you have fantastic credit.

And with the amount of identity fraud growing, keeping careful oversight of your credit reports and fixing any errors becomes even more important.

Some of the most common errors come as the result of name confusion. The more common your name, the more likely it is that you will have problems of this variety.

People have found accounts listed on records that don’t belong to them, found themselves listed as deceased, found the before noted wrong addresses, and incorrect statistical information such as birth year, etc.

If any of these items disagree with the information on a credit application, it raises a red flag. Often these errors come as the result of a person with a similar name moving, passing away or opening a new account, and the information is mistakenly put on your account instead of theirs.

Even more dangerous are the problems arising from a person who steals your identifying information and uses it to open credit accounts.

To fix an error on your credit report, you must initiate the procedure. You should call or send a certified letter to each of the credit reporting bureaus that show the error. In the case of data entry mistakes, you may need only contact one of the bureaus, but in the case of fraud, you will need to contact each bureau.

In the letter or phone call, you should provide your complete name, current address, date of birth and social security number.

If you dispute your ownership of an account listed on the report, you need to provide the name of the company listed as owner of the disputed item, and the account number that you dispute.

If there is an error is a factual error or error in personal information, note the incorrect information and what the correct entry should be. Make a formal request that they correct the information on the credit report.

Before sending the letter to the bureau, gather any supporting evidence or documentation that might help. Credit bureaus are required to remove any items that cannot be verified and fix any factual errors.

You may have to persistently pursue the bureaus, but they often fix mistakes promptly. When there is a dispute over a record’s accuracy, there may be more difficulty.

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The easy answer to this question is no, your job does not directly influence your credit score. The complete answer to that question may be more complex, however.

For example, in Canada, a person looking for an automobile loan may find that (s)he is evaluated on a variety of factors, including the duration of their current job and the salary they collect.

Salary is definitely also a factor in the U.S. when a credit agency is evaluating whether or not to grant a loan to an individual. All businesses who provide loans examine the debt percentage – how much a person owes compared with how much that person brings to the table in terms of income.

But credit reporting agencies who develop the FICO and other credit scores do not consider salary in their numerical calculations.

In fact, an objection that many have to the credit score is that it is so impersonal, and does not take into account any personal factors, such as an illness in yourself or close family member or the economic conditions in the area where you live.

On the other hand, they are also not allowed (and don’t) to take into consideration any information regarding race, gender, religion, nationality, marital status, age, hometown, interest rates charged, salary, occupation, job title, length of employment or employment history.

Many people consider this good news, since there are often gaps in employment history or decreases in salary over the course of a career, but those who manage to keep their finances in good order through those kinds of challenges are able to maintain credit scores just as high as those who never had such problems.

A credit score may, however, but used when you are looking for a job. Potential employers have begun to use credit scores to determine the relative responsibility of potential hires. It is possible that your potential employer will know about any debt you have, bankruptcy, or poor credit history.

A person who has been responsible in his or her finances is considered a better risk as an employee; since they make the assumption that such a person will also be responsible with the company assets.

While some consider it a difficult thing that landlords, employers and insurance companies may all run credit reports on you before determining your rates or deciding to rent to you, it is true that every business is attempting to lower its risk factors in any way possible, and hiring, renting to, and insuring good credit risks helps lower business risk.