Your FICO, or credit, score has a huge impact on the interest rates for which you are eligible for loans and credit cards. An improvement of just 50 points in your score can mean paying hundreds of dollars less per month for a 5 year auto loan, for example. Understanding what makes up your FICO score is the first step toward improving it.

The Big Three credit reporting agencies (viz., Equifax, TransUnion, and Experian) calculate your FICO, or credit, score based upon the same formula. The creators of the FICO score formula, the Fair, Isaac & Company, do not make the exact formula public. But, they have made public the 5 main elements of your credit score and how heavily each component is weighted mathematically to get your total score. The breakdown is as follows (note: this information is subject to change at any time, so be sure to check the Fair, Isaac & Company Web site or recent press releases for the most up-to-date information):

Payment history - 35% (of Score): Of course, if you have never made any late payments on any of your accounts, the payment history portion of your score should look quite attractive. Items in your past that can bring down this part of your score are: bankruptcies, law suits, and wage attachments.

Amounts owed - 30%: This element boils down to the ratio of the amount you owe to the amount of credit extended to you. For example, if you have multiple credit cards with a total of $20,000 in credit lines but you owe a total of $10,000 on those cards, your ratio is 50%. The lower your ratio, the better. Also factored into this element is the number of credit accounts you now have open. The Big 3 credit agencies like you to have at least a few accounts open, but at the same time not too many.

Length of credit history - 15%: This component actually factors in two items: the total length of your credit history and the average length of time your current accounts have been open. In both cases, the longer, the better, in terms of your credit score.

New credit - 10%: If you are trying to improve your credit score, avoid applying for multiple new credit cards or loans at once. Instead, take your time and slowly build up a history with each loan instrument one at a time before applying for the next.

Types of credit used - 10%: Making regular and on-time payments to multiple lenders can help your credit score. For example, a mix of revolving credit cards, charge cards, installment debt, and store charge accounts is ideal. Again, having these multiple types of credit is only useful if you keep the balances low relative to your total credit line.

By remaining aware of what elements the Big 3 credit reporting agencies take into account when calculating your FICO score you will be empowered to make adjustments to your financial life and improve your score.