Credit scores are important indicators of how responsible an individual is with borrowing money. A credit score is a mathematical calculation that evaluates multiple factors in an individual's credit report. This score essentially tells a lender about how likely the person is to repay a loan. Credit scores range from 300 to 850 and the higher a person's score, the more likely they are to receive credit and at better terms.

Generally speaking, lenders use a broad range of criteria to decide whether they will approve someone for a loan or other type of credit, but the credit score is an important element. The three main credit bureaus--Equifax, Experian, and TransUnion--each use their own proprietary formula to calculate a credit score. The score most commonly used is the FICO score, which is the most widely used score by lenders.

A credit score is based on a variety of factors, including one's repayment history, how long one's credit history is, the types of credit used, and the amount of debt one carries. Paying bills on time and keeping low balances on credit cards will usually raise a person's credit score. Conversely, late payments and high credit card balances can lead to a lower score.

Another factor in the credit score equation is credit utilization. This is the percentage of available credit currently being used. For example, if you had a $10,000 limit on a credit card and you were using $4,000, you would have 40 percent credit utilization. Generally, it is best to have a utilization rate of less than 30 percent. If you have a higher utilization rate, you may want to consider paying down the balance or increasing your credit limits in order to improve your score.

It is important to understand that closing unused accounts is not always a good idea when it comes to credit score. While a person might think that by closing an account he or she is improving their credit score, it can actually have the opposite effect. Closing accounts can reduce the total amount of credit available, which can result in a higher credit utilization and a lower score.

In summary, credit scores are important factors when it comes to borrowing money as they give lenders an indication of a person's creditworthiness. The three main credit bureaus use proprietary formulas to calculate credit scores, which are based on factors such as payment history, types of credit used, length of credit history, and the amount of credit used. Paying bills on time and keeping low balances on credit cards will generally result in a higher credit score, while late payments and high card balances can lead to a lower score. In addition, having a higher utilization of available credit can also result in a lower score, so it is important to keep that in mind when trying to raise a score.