A credit score is how businesses rate how much they trust you. This affects how much credit they will extend to you and how much they will charge you for key services.

For instance, many interest rates on large purchases are set, in part, by your credit score. This is important when buying a car, for example, because the better the credit score, the smaller the car payment.

Credit scores are calculated automatically using information from your credit reports. When you begin doing business with companies on a credit (vs. a cash or prepaid) basis, information about those transactions goes onto your credit reports. The three major credit bureaus that manage these reports are Equifax, Experian and TransUnion. Some lenders use a blended score from all reporting agencies. But, while scores might not match exactly, they’re usually close for practical purposes.

Your three-digit number credit score is calculated based on 6 major factors.

1. Open Credit Utilization – Your utilization rate is your total open credit card balances divided by your total open credit card limits. Lowering your utilization rate can often improve your credit score.
2. Percent On-Time Payments – Paying bills on time is one of the best ways to keep your score up.
3. Number of Derogatory Marks – This includes bankruptcies, foreclosures and liens.
4. Average Age of Open Credit Lines – Longer is better. The lengthier your credit history, the more information lenders have about your creditworthiness. Think carefully about closing old accounts that shorten your overall average.
5. Total Number of Accounts – This means the number of credit cards, loans, mortgages and other lines of credit. Having many accounts, across various types of credit — such as revolving and installment — shows creditors that other lenders trust you.
6. Total Hard Credit Inquiries – Inquiries occur when a financial institution checks your credit. Having too many hard inquiries will impact your credit score as it suggests to lenders that you are desperate for credit.

Many insurance companies consider your credit scores for auto and homeowner’s insurance. The difference in premiums between high and low credit score customers can be hundreds or even thousands of dollars per year. The amount of deposit that a utility company requires to connect gas, electricity and water services is often based on credit score as well. In some cases, landlords and employers check credit scores, meaning a bad one can keep you from the home or job that you want.

Some credit card companies, like Discover, provide a free credit score. You can also get both your TransUnion and Equifax credit score for free from CreditKarma.com, which is available online and through their mobile app.

Valrie Chambers, Ph.D., associate professor of accounting at Stetson University, is responsible for the content of the Financial Friday series. Every Friday, students receive an announcement that is meant to bolster their financial wellness, including preventing financial mistakes, tips for safeguarding their assets including their financial identity and tips on how to critically think about financial decisions that need to be made.