For the average consumer in the USA, the credit score is the most important number there is. In most cases, those few digits determine how we go about our lives. Your credit score helps determine how large your home is, what style of automobile you own, and what your vacation plans are.

And yet, despite how significant the numbers are, most consumers have no idea how the credit score is determined, who’s in charge of it, and how to change it to make it better.

To begin with, we’ll talk about your credit score. Basically, your credit score is a value applied to your credit rating. It reflects how well you pay your bills, how much debt you have, and what type of credit (credit cards, bank loans, student loans, etc.) you have. Your credit report is gathered through a huge series of national databases, and from that your credit score is determined.

All the credit card companies, banks, lenders, landlords and other creditors you do business with report your history with them — good and bad — to at least one of the credit reporting agencies every month. Now, it’s only financial info that they supply. Things regarding your race, religion, salary, job, and other personal information are not included.

Then, all of this information is gathered together and sent to the credit bureaus. There are three of them: TransUnion, Experian, and Equifax. They compile all the data and create your credit report, along with your credit score. Then, they supply that information to creditors who request it — when you respond to a new credit card offer, for example, or apply for a mortgage.

So how is that credit score determined? No one outside the three bureaus knows exactly. Each one has a different system for tabulating it, and their mathematical formulas are closely guarded secrets. You’ll get a different credit score from each bureau, though they’re all usually pretty close to each other. We know they look at your payment history, how much debt you have now, what your credit limits are, your most current credit activity, and what types of credit you’ve had in the past.

Generally speaking, the higher your credit score, the better things are for you. You’ll get no annual fees, low rates, and other perks on your credit card offers.

Of course, different creditors look at credit reports differently, choosing to focus on some things while disregarding others. For example, mortgage lenders will often ignore a mediocre credit score if your credit report indicates that your recent payment history has been excellent. Meanwhile, another creditor might look at how much debt you have and be turned off, even if you have a good credit score.

And now the big question: We know what the credit report and the credit score are; how do we change them to make them reflect more positively on us? Understand up front that there’s no overnight, easy way to improve your credit report. If there are mistakes, those can be corrected. But if the information is accurate and up-to-date, you can’t erase it.

What you can do is to replace any bad credit you have on your report with new, good credit. Some basic tips to follow:

• Pay on time, every month, no matter what. Late payments ding your credit score quite a bit. If you’re behind, get caught up and stay caught up.
• Keep the balances low, as much as you can.
• Rather than opening a bunch of new credit cards and closing out the old ones, simply work on handling the old ones. A flurry of new activity on your credit report looks bad.

Your credit score is ultimately a measure of your overall financial behavior. If you behave irresponsibly, like maxing out your credit cards and constantly opening new ones, it’s going to affect your capacity to get more loans in the future. Your credit score is very important in determining your monetary future, so do everything you can to keep it high and healthy.

Remember, you can view your credit reports without affecting your credit score any time you want — and in fact, you should do so at least once a year to make sure the information is current and accurate.

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