Do you ever wonder how your credit score is calculated? Your credit score or FICO is a three digit number designed to gauge your creditworthiness. Lenders use this number to determine if an individual is worthy or receiving credit and, if so, at what interest rate. The FICO score can affect your ability to borrow money for everything including home mortgages, credit cards and auto loans. The score ranges from 300 to 850 and is calculated by Fair Isaac Corporation. Fair Issac is a NYSE listed company that collects information from the three leading credit agencies, Equifax, Inc. Experian, PLC, and TransUnion, and analyzes the numbers to include in the credit score.
According to Fair Isaac, a credit score is made up of of five components:

• 35% reflects payment history, i.e. whether you pay your bills on time to one of the lenders that reports to the credit reporting agencies;
• 30% reflects amounts owed and how credit limits compare with balances owed. The more you carry, the lower the score;
• 15% reflects length of credit history: The longer the history, the better credit lenders can gauge your ability to pay them back;
• 10% reflects new credit – how many accounts you opened recently;
• 10% reflects credit mix – credit cards, student loans, medical etc.
  

You cannot get your credit score free but you can get a credit report for free one time a year from each of the reporting agencies. A free report can be obtained from annualcreditreport.com. Wall Street Journal, December 31, 2008