Most of us know there are times in life when you’ll need things that can only be purchased using credit, including buying a new car, a first home, and paying for college.

We also understand that in those situations, before lenders will give you that credit, they want to be able to access your ability to pay it back, which is determined by a calculation that leaves you with a magical number known as your credit score. 

While a recent study by Illinois-based financial activity services company Discover Financial Services Inc. shows the majority of U.S. consumers—61 percent—are trying to improve their credit score, financial experts here say many people still don’t seem to understand fully why they have the score they do or what they can do to improve it.

Keith Appleton is a Spokane-based education outreach officer for Spokane Teachers Credit Union and the main presenter of a series of credit score workshops the organization hosts every year.

Appleton says the most common questions he hears at these workshops include those about what affects a credit score and how much, how to check a score, and how to improve a score.

“The thing about a credit score is that it’s different for everyone, because we all have different history and life circumstances,” he says. “These differences make some of those questions more difficult to answer than others.”

Essentially, your credit score is a three-digit figure that represents your history of borrowing and paying back money, says Appleton.

“The credit score is looked at as a way for lenders to access your likelihood to make payments,” he says. “The higher the score, the more trustworthy you’re considered to be.”

In the 1960s, Minneapolis-based Fair Isaac Corp., also known as FICO, developed a formula that uses information from your credit report to calculate your credit score. A credit report is a record of your loan history and current credit accounts compiled by credit bureaus. 

Appleton says the FICO formula is still used today by the largest three credit bureaus—Equifax, Experian, and TransUnion—to determine your credit score. However, because each bureau collects and reports your information independently, your FICO score will usually differ among them.

The FICO scale ranges from a low 300 to a high 850, but Appleton says a “good” score is generally considered to be 720 or higher.

“All financial institutions use different range systems, and some go with one credit bureau over another,” he says. “You can’t always choose when or which bureau’s score a lender chooses to pull, so you need to try to ensure your score is relatively good for each.”

Appleton says credit scores are based on five categories: payment history (35 percent), amount owed (30 percent), credit history (15 percent), new credit (10 percent), and types of credit (10 percent).

“The categories we encourage people to look at most often are payment history and amount owed, because those are also the two categories you have the most influence over,” he says.

Payment history gives an idea of your habits in paying bills on time, while the amount owed category shows how much you still owe versus how much credit you have available to use.

“You can improve your score in these categories by paying bills on time, paying down debt and not maxing out your credit cards,” he says.

The credit history section helps to display payment patterns over time, he says, while the new credit section shows how many credit requests you’ve made recently and how often your credit has been checked, and the types of credit section shows the different kinds of credit you’ve used.

“A longer credit history helps demonstrate responsible payment behaviors, whereas opening new credit lines rapidly or with too much frequency shows greater risk,” he says. “In the types of credit category, having a greater variety shows you’re not overly reliant on one and can flexibly manage different payment schedules.”

Because everyone’s history is different, Appleton says what affects your score and how much also can be hard to determine.

“We can offer people some general advice on improving their score, and some expected ranges for potential impacts of things like late payments, maxed credit cards, debt settlement, etc.,” he says. “But it’s really hard to give exact determinations.”

While last month’s Discover survey shows millennials are leading the way in working to improve their credit scores—83 percent reported taking steps to improve their score, compared with 66 percent of Generation X and 34 percent of baby boomers—Appleton says he hasn’t noticed any particular differences across demographics.

“We get a good mix of people of all ages and circumstances,” he says. “In the long run, the more you understand about good financial habits and the better you can demonstrate you’re able to handle repayments, the higher your score will be.”

Appleton says there are still many myths about credit scores that lead people to believe their score will be higher or lower, or that certain things will impact it more than others.

“One big misconception is that checking your score will cause it to drop,” Appleton says. “This is where it’s important to distinguish between a hard inquiry and a soft inquiry.”

Appleton says hard inquiries take place when consumers actually apply for a credit card, auto loan, mortgage, or other loan. On the other hand, soft inquiries typically occur when employers access your report to look for signs of risk or you check your own credit report.

“Soft inquiries don’t affect your score. When there are too many hard inquiries, which occur whenever you apply for new credit, your score can drop,” he says.

Even within the Discover survey, nearly a quarter of respondents reported they believed simply checking their credit score negatively influenced it, while 62 percent did not believe so, and 16 percent of respondents remained uncertain.

When it comes to checking your credit score, Appleton says that you’re entitled to a free credit report from each of the three big credit reporting agencies once every 12 months. You can request all three reports at once, or space them out throughout the year.

He says individuals can access their credit report using annualcreditreport.com, to get an idea of what their score might be. If you want to know your actual score, however, those agencies will likely charge you a small fee.

“This site is a way of checking your report for free, and we advise people to go on and check it for accuracy, as well as inquiring about their score with each bureau once each year,” he says.

Appleton says some banks will offer online platforms to help you estimate your score, and there are also ways of obtaining your score through third-party websites.

“We always caution people to be mindful of third-party sites as they can have hidden charges, and also because your credit report contains a lot of personal data and information,” he says.

“If you’re concerned about fraud or identity theft, there are ways you can protect your account using credit locks or freezes, which restrict access to your credit report.”

Appleton says another common myth is that making only minimum payments and keeping a balance on your credit card improves your score.

“It’s always better to pay down your balance, or pay it off in full if you can,” he says.

Appleton explains that with a credit card it’s important to pay attention to your credit utilization ratio—the amount of credit you use compared with the amount of credit available to you.

“You should aim to keep credit card balances below 30 percent of your available credit,” he says. “Because too high a credit utilization ratio shows you’re relying too much on credit or on one type of credit, which can cause your credit score to drop.”

Chris Pasterz is the director of financial stability for Spokane Neighborhood Action Partners, a nonprofit community action agency that offers resources to assist families and individuals with paying bills and developing healthy, sustainable financial habits.

Like STCU, Pasterz says SNAP offers a number of courses to individuals seeking to learn more about their credit score and how to improve it.

“We approach credit and credit building through three classes,” he says. “The first is our course on basic budgeting, but we also offer a course called navigating your credit, as well as a more advanced credit building course.”

Pasterz says most of those SNAP works with in its courses are people who are looking to buy a home or a car, but suddenly find their credit score isn’t high enough. 

“Most of what we see is people who’re coming up against a negative effect,” he says. “They’re looking to buy something they feel would be an asset but can’t because their score isn’t good enough.”

Pasterz says it’s actually quite common for people to ask what a good credit score is and whether they really need one.

“Believe it or not,” he says, “Some people see not having a score as a good thing, as in, ‘If I don’t have one, how can it be bad?’”

A lot of misunderstandings come from having an incomplete picture of how a credit score is derived and what affects its ups and downs, he says. “Your score affects not just the interest rates paid on money you borrow, but also insurance rates, and things like whether a new employer or rental accommodation will take you on.”

With home and rental prices in the area continuing to rise, Pasterz says, SNAP has seen more demand for its budgeting and credit score courses, particularly from first-time homebuyers.

“We are seeing a connection, a lot of our referrals come from first-time homebuyers and programs we offer to help them,” he says. “The good thing is seeing how proactive folks looking to buy a home are becoming, in taking those steps to improve their credit, so they can hopefully get better terms and interest rates.”

For his part, Appleton says the most important things people need to remember in improving their score are: creating good habits, checking their credit report once a year, and understanding what affects it, so you can keep improving.

“Smart decisions over a long period of time will lead to a healthy score, but small things can bring it down quickly,” he says. “Your score changes year to year as you’re able to pay off your debts so, it’s important to stay mindful of your score, and occasionally use credit to keep your history active.”