Credit scoring is a method lenders use to make lending decisions. Your credit score is a numeric value based on the information in your credit report. It tells lenders how likely you are to repay loans and credit card bills on time. It affects whether you can get credit and how much you pay for that credit. In general, the higher your credit score, the more likely you are to be approved and to pay a lower interest rate on new credit, reports the Massachusetts Society of CPAs.

To determine your credit score, most lenders use a system developed by Fair Isaac Corp. The system uses five factors to arrive at your credit score. Each factor counts as a percentage of your total FICO score: payment history (35 percent); how much you owe (30 percent); the length of your credit history (15 percent); new credit (10 percent); and other factors, such as having a mix of credit types in your credit report (10 percent).