Have you missed a credit card payment? Are you close to reaching your credit limit? Do you pay only with cash or a debit card?

These three factors are only a small part of a complex mathematical program used to calculate a three-digit number that represents your credit score.

Lenders use your credit score to assess your risk as a consumer. The higher your credit score, the more likely businesses will view you as a consumer who will repay a loan on time. The lower your score, the less likely you’ll be approved for a loan. A low score could cause you to have your apartment rental application denied; and pay more for homeowners or renters insurance premiums, and even cell phone usage.

“These differences can be hundreds of dollars a month on a home loan,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

Each of the three national credit reporting agencies has its own way of calculating credit scores. However, they all look for common characteristics and ask similar questions, such as:

  • Do you pay your loans and bills on time?
  • How much available credit do you have? And how much of it are you using?
  • Have you been opening, or seeking to open, new credit accounts lately?
  • Are you only applying for the credit that you need?
  • Have you displayed suspicious credit behavior, such as closing several accounts over a short period of time?
  • How long have your accounts been open?
  • Has your spending behavior changed drastically?
  • Have you gone through bankruptcy or an effort to reach a debt settlement?

The credit reporting agencies evaluate this data—which is stored in your credit report—and compare the information to that of similar consumers. Positive and negative factors are fed into a formula that creates your credit score.

The credit reporting agencies can’t use race, gender, marital status, religion or national origin as factors when calculating your credit score, according to the Federal Trade Commission (FTC).

FICO scores are the most commonly used credit scores, and they range from 300 to 850. In general, a good score is anything at or above 675, and the best tier, which is generally at or above 760, will qualify you for the lowest interest rates.

Along with bankruptcy or debt settlement, a history of late payments has the greatest negative impact on a person’s credit score, Jones says. Most negative information can stay on a credit report for up to seven years, according to the FTC.

“Records are kept for many years and creditors will look at your credit report as well as your credit score,” Jones says.

The good news is that a history of positive financial behavior, such as on-time payments and not using your maximum credit limit, is the best way to improve your credit score over time.

But nothing is straightforward when it comes to credit. For example, while it’s considered positive to have long-established lines of credit, also known as “tradelines,” owning too many credit card accounts could bring down your score.

Closely monitor your credit report to make sure all of the information is accurate and up to date. If something is incorrect, it could lower your credit score, and incorrect information could be the result of fraud or identity theft.

The Fair Credit Reporting Act requires the three national credit reporting agencies to provide you, per request, a free copy of your credit report every 12 months. You can access your free credit reports online through annualcreditreport.com, and you can also obtain your credit score more than once a year for a small fee.

If any of the information in your credit report is incorrect, the credit reporting bureaus can provide you specific guidelines to dispute and correct the information.