For American consumers, there might be no number more important to them than their credit score. Those three figures govern much of our financial lives — where we vacation, what things we buy, whether we can afford a new car. Yet despite how important they are, credit scores are a mystery to most people. They don’t know who decides them or how they’re figured, and they don’t know how to change their credit scores to their advantage.

Before we go too far, let’s talk about what the credit score and the credit report are. Basically, your credit score is a summary of how you pay your bills, how much debt you have, and what types of credit you have - all boiled down to a three-digit number. Your credit report, meanwhile, is a detailed history of your credit: who your creditors are, your payment history, and so forth. The credit score is essentially an at-a-glance summary of what’s in your credit report.

So how is all that information gathered? Basically, all the banks, lenders, creditors, and landlords you deal with report your payment history, both positive and negative, to the credit-reporting agencies. Of course, only the financial information is conveyed. Nothing about your gender, race, religion, age, income, or job is transmitted.

All of this info is sent on to the national credit bureaus - Experian, Equifax, and TransUnion. Those are the bureaus that determine your credit scores, and they provide credit reports (and scores) when consumers request them, or when lenders and creditors need them. It’s an elaborate financial world, with everyone connected through databases and networks.

So now you know where the reports come from. What about those scores, though? The specific process is secret, and each of the three credit bureaus does it differently. (Most consumers have three different scores, though they’re usually pretty close to each other.) But they take into account how much debt you have, how long you’ve had credit, your monthly payment histories, and what your most recent type of credit activity is. Most important are two factors: how much you’re in debt, and whether you pay your bills on time.

Your credit score is pivotal. “Generally, the higher the score, the better rate and term you’ll get on loans,” says Ravi Shahani, of American Consumer Credit Counseling. “The higher score tells lenders you are very reliable with credit.”

Still, different vendors and lenders look at different things in your credit reports, and may emphasize different factors. For instance, mortgage lenders often disregard a comparatively low credit score if they can see on the report that your most recent credit activity has been favorable. It shows them that though you’ve had some trouble before, you’ve gotten back on track now. On the other hand, another creditor might be alarmed by the amount of debt you’re currently carrying, even if your monthly payment history is excellent, and not give you any more credit.

You understand where your credit reports and credit scores come from. But what can you do about it? You should realize up front that there’s no magic way of improving a credit score. Nothing can be done overnight. "Mainly it's a matter of time," says Shahani. "There are no shortcuts."

Here are some basic tips for boosting your credit score over time, though:

• Pay your bills promptly! Late payments look bad on the report. Get caught up and stay caught up.
• Keep your balances low. Transferring debt from one credit card to another won’t help you; you need to actually reduce the debt. Look at new credit card offers carefully to decide if a balance transfer will actually help — you should take only the best credit card offers.
• Replacing old accounts with new ones is no good, either. Manage your current accounts smartly and don’t open new ones unless it’s necessary.
• Frequent inquiries into your credit report look bad. If you have to start more than one new credit account, try to do them all at once.
• If you’re drowning in payments, seek out a credit counselor or make an arrangement with your lenders. It’s best to work something out now, before the credit bureaus get wind of it.

Like it or not, the credit score is a huge factor in our financial lives. It’s a measurement of your credit-related behavior, and unwise actions like late payments or borrowing too much will impact it. The score is important, so handle it carefully, or you’ll have trouble in the future.

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