Just like knowing how to read a blueprint can help you build a better house, so can knowing how credit bureaus calculate scores can help you improve your rating.

First, understand what a 'credit score' is. A credit score is a three digit number which represents a prediction as to how well you will re-pay debt, including seemingly trivial matters such as utility bills. Credit scores span from 300 to 850; with 300 representing a 'bad credit score' and 850 representing 'excellent credit'. The credit score and is calculated using your credit history information from your credit report. When you submit a credit application, the creditor or lender; whether a credit card company, personal loan lender or other financial entity, uses your credit score to make either an approve or a reject decision. This same decision can just as easily be made merely by examining your credit report entries. The credit score merely simplifies the process by summing all the entries. While there are several different versions of the credit score, the most commonly used version is the FICO score, a product of the Fair Isaac Company. The FICO score is used by many creditors and lenders to decide whether or not to extend credit to applicants.

How your credit score is calculated - Some parts of your bill paying history are more important than others. For that reason, different items of your credit history are given different weights in calculating your credit score. The exact equation for calculating credit scores is proprietary information owned by Fair Isaac; however, we do know what information is used to calculate your score and have an idea as to the weight each carries.

• Your payment history; how well you repay credit, accounts for 35% of your score. Because lenders want you to pay them back, they focus on whether or not you paid all your bills timely in the past. Late payments, collection agency action and bankruptcies all affect the payment history of your credit score. More recent; including current, delinquencies hurt your credit score more than those in the past.
• Your debt level; the amount of debt you owe compared to your credit limits (also referred to as credit utilization), accounts for 30% of your score. The higher your credit utilization; the closer you are to maxing out, the lower your credit score will be. Tip: Keep your credit card balances at about 30% of your credit limit or less.
• Your credit history length; from the very first time you had been approved for credit to the present, accounts for 15% of your score. Having a longer credit history is favorable because it gives more information about your spending habits. It’s good to leave open the accounts that you’ve had for a long time.
• Credit report inquiries; due to lenders and creditors reviewing your report because you applied for credit, accounts for 10% of your score. In many cases, each time you submit a credit application; whether offline or online, an inquiry is added to your credit report. Some employers and landlords will also review credit reports. Too many applications for credit can mean that you are taking on a lot of debt or that you are in some kind of financial trouble. While inquiries can remain on your credit report for two years, your credit score calculation only considers those made within a year. Tip: Before signing any agreement, check the fine print to see if your credit report will be reviewed.
• Credit variety; the different types of credit (whether credit cards, personal loans, auto loans, etc), accounts for 10% of your credit score. Having different kinds of accounts is favorable because it shows that you have experience managing a mix of credit. This isn’t a significant factor in your credit score unless you don’t have much other information on which to base your score. Tip: Open new accounts as you need them, not to simply have what seems like a better mix of credit.

Fix bad credit report scores by following these tips:

• Pay bills timely - Late payments can destroy credit quickly. Thirty-five percent of your credit score is your payment history, and routinely being late paying bills; like credit card payments, will hurt your credit score. Pay everything; especially mortgage and credit card bills, on time to preserve your credit score.
• Don't simply stop paying - If you stop paying credit cards bills; it's far worse than merely paying late. Each month you miss a credit card payment, you're one month closer to having the account charged off, which is also bad.
• Don't charge off credit card debt - When creditors think you're not going to re-pay credit card debt, they charge off the account. This account status is one of the worst things for your credit score.
• Don't let an account go to a collection agency - Many creditors will hire debt collection agencies to try to collect payment. Creditors might send your account to collections before or after charging it off. A collection status shows that the creditor gave up trying to get payment from you and hired someone else to do it.
• Don't default - Loan defaults are similar to credit card charge offs. A default entry on your credit report tells reviewers that you have not fulfilled your end of the loan contract.
• Don't file bankruptcy - Bankruptcy will kill your credit score. It should be your last alternative, after undergoing consumer credit counseling.
• Don't even get near to home foreclosure - Getting behind on mortgage payments will lead the lender to foreclosure. Late payments will hurt your credit score and make it harder to get approved for future mortgage loans, or for loans at favorable interest rates, even equity loans.
• Don't get a judgment against you - A judgment reveals you not only avoided paying bills, but that the court had to get involved to force you to repay the debt. If you do get a judgment against you, make it less hurtful by paying it in full and timely.
• Don't accrue high credit card balances - The second highest percentage calculation of your credit score is your level of debt. Having high credit card balances close to your limit increases your credit utilization and decreases your credit score.
• Don't max out credit cards - Maxed out and over limit credit card balances make your credit utilization 100%. This is least ideal for your credit score.
• Don't close credit card accounts that still have balances - When you close a credit card that still has a balance, your credit limit drops to $0 while your balance remains. This makes it look like you've maxed out your credit card.
• Don't close out unused credit cards - Remember, 15% of your credit score is the length of your credit history, so longer credit histories are better. Closing old credit cards, especially your oldest cards even those you worked hard to pay off balances, makes your credit history seem shorter than it really is.
• Don't close credit cards with available lines of credit - If you have multiple credit cards; some with balances and some without, closing those credit cards without balances increases your credit utilization.
• Don't submit too many credit applications - Credit inquiries account for 10% of your credit score. Making several credit or loan applications within a short period of time will cause your credit score to drop. Keep applications to a minimum.
• Don't limit your credit type - Use all types of credit, including credit cards and loans, not just one or the other. Mix of credit is 10% of your score. When you have only one type of credit account, either loans or credit cards, your credit score could be affected. This factor mostly comes into play when you don't have much other credit information in your credit history.

Prepare for clean credit - Bad credit is bad on your pocketbook and your financial options, but bad credit doesn't have to last forever. There are things you can do right now to begin to improve credit scores.

Top tips to quickly improve credit scores:

• Stop new credit card charges - People who have bad credit shouldn't continue piling up debt. Put your credit cards away until you have more control over your finances.
• Order a credit report copy - You can't fix credit report scores until you know your weaknesses, or to find errors. Order a credit report copy from each of the three major credit bureaus (Equifax, Experian and Transunion). Don't forget that federal law allows you to have a free credit report annually.
• Clean credit report errors - If there are credit report errors, you have the right to have them removed. Your credit report will include information about disputing inaccurate information with the credit bureaus.
• Catch up on late payments - Your payment history makes up 35% of your credit score. Getting current on your delinquent accounts will have a great impact on your credit.
• Don't apply for more credit cards and loans - While you have bad credit, avoid making any more applications for credit. It's likely that you'll get turned down for credit and the applications will only decrease your credit score.
• Don't close accounts with balances - Although you might be tempted to quickly close delinquent credit card accounts, first make sure doing so won't negatively affect your credit.
• Contact and negotiate with creditors - Many creditors will be eager to help you. Tell them your situation. Many have short term hardship programs to reduce monthly payments until you can get back on your feet.
• Pay off debt - You will have to start paying off your debts to improve your credit situation. If you don't have the money on hand, sell some of your belongings to speed up the process. It will be a sacrifice, but the financial freedom you gain will be worth it.
• Seek professional financial assistance - Resources such as a consumer credit counseling agency can be helpful if you are overwhelmed by your bad credit situation.
• Wait - You didn't get bad credit overnight, and you won't get good credit as quickly either. Continue paying bills and over time you will see a credit score improvement.