Definition

• A credit score is a three-digit number compiled by companies like FICO and the credit bureaus, and are used to assess a person's credit worthiness. The Consumer Federation of America explains that the score is considered by lenders, banks, insurers, employers, landlords, utility companies and others who make credit, employment, housing and insurance decisions. They may refuse to grant credit, jobs, insurance policies or services to people with low scores, or they may impose higher interest or require a high down payment or deposit.
  
  

Factors

• Credit scores are influenced by many factors, all of which are related to how consumers handle their financial obligations. FICO explains that credit limits and balances, the length of time accounts have been open, types of credit used and payment histories are all important. The number of accounts also affects the score.
  
  

Significance

• According to the Experian credit bureau, the number of accounts a consumer maintains can hurt the credit score, whether or not there are outstanding balances. A person with many high-limit, zero-balance accounts could quickly get overextended by tapping into all of them. Someone with many outstanding balances might be unable to make payments in the event of an emergency, such as job loss or major illness.
  
  

Types

• Consumers must have more than one account for an optimum credit score, according to Liz Pulliam Weston, an MSN Money columnist. Creditors prefer to see different account types on a person's credit report. This means a mixture of revolving credit like Visa, MasterCard, Discover, American Express, retail accounts or gas cards and installment loans like mortgages, personal loans or auto loans. These accounts must all be handled responsibly to keep the score high, including maintaining reasonable balances and making all payments on time.
  
  

Time Frame

• Accounts affect a credit score as long as they are open. Closed accounts appear on credit reports for seven years, according to the Federal Trade Commission. Their positive or negative payment history counts in the credit score for that entire time frame, although the impact goes down toward the end of the reporting period. It disappears completely when the accounts are erased.
  
  

Warning

• FICO warns against acquiring more charge cards or new loans to raise a credit score by getting a better account mix. Applying for too much credit at once can hurt the score. FICO explains that it's better to open new accounts only when they are needed and to focus on other score-raising strategies, like prompt payments and building lengthy account histories.