A credit score is an objective measure of credit risk. It summarizes the information from your credit history into a single number--your credit score. Fair Issac Corp. is the creator of the current credit scoring system, which is why your credit score is also known as a FICO credit score or FICO score. You have a FICO score for your credit profile with each of the credit reporting agencies, also known as credit bureaus: Experian, Equifax and Trans Union. FICO scores range from 300 to 850, with 850 being the best possible FICO score. A credit score less than 650 is considered "subprime".

The formula Fair Isaac Corp. uses is very complicated and many factors affect the scores. The following is a basic breakdown of the major components that impact your scores:

How recent the credit activity took place, as well as the frequency and severity, also have an impact on your scores. For example, a recent late payment will have a greater impact on your scores than one that's five years old. Another component that can have an effect on your credit scores are credit inquiries. Fair Isaac defines a credit inquiry as follows: A credit inquiry is an item on a credit report that shows a business with a "permissible purpose", as defined under the federal Fair Credit Reporting Act (FCRA), has previously requested a copy of the report.

FICO scores do not take into account any involuntary inquiries made by businesses with which you did not apply for credit, inquiries from employers, or your own requests to see your credit reports. The only time your scores are affected is when you authorize a lender to request copies of your credit. These types of inquiries lower your scores because the requests for your credit reports are prompted by you. For example, credit inquires for credit cards can hurt credit when you fill out a credit application for a department store card at the local mall and when you respond to offers for credit cards in the mail.

Shopping for a mortgage or an auto loan also generate inquiries that can lower your score a little because it may cause multiple lenders to look at your credit. But, to compensate for this, the FICO scoring system ignores all mortgage and auto inquiries made in the 30 days prior to scoring. If you find a loan within 30 days, the inquiries won't affect your scores while you're rate shopping. So, if you need a loan, do your rate shopping within a focused period of time of 30 days.

Also remember, before shopping for a mortgage, be sure to check your credit yourself. Order your credit reports from the credit bureaus: Experian, Equifax and Transunion. Check them over careful for accuracy. It's estimated that about 70% of credit reports have errors. These errors can have a serious impact on your credit scores. If you find you have an error, dispute it with the credit bureau by mail, so that you generate a paper trail. Send all your correspondence as certified mail with return receipt requested. That way, you know just when the credit bureau received your dispute. This starts the clock ticking. They must respond within 45 days of receiving your dispute. If they fail to respond in a timely way, they must remove the disputed item from your credit report. The only time an item that is deleted from your credit report can reappear is if the information provider (creditor) verifies that the item is correct and verifiable. Otherwise, anything removed cannot reappear according to the Fair Credit Reporting Act.