Have you ever been denied a loan, or offered less than the most favorable loan terms because of your credit score? Welcome to the world of credit scoring.

A credit score is a number, based on your credit and payment history, that lenders use to help them decide how likely it is that you will pay back your loan and not default.

In this post we'll discuss credit scores, and how you can find out and analyze your own credit score.

Your credit score is a snapshot of your credit risk at a particular point in time. Credit scores give lenders a fast, objective measurement of your credit risk. People with lower scores are considered to have a lower likelihood of paying back the loan. They will pay higher interest rates or possibly be turned down altogether when they apply for credit.

All three of the major credit reporting bureaus now calculate and report credit scores to lenders. Each credit bureau uses the Fair Isaac and Company, or FICO, scoring model, but each has its own unique name for it.

Your credit score is based on information in your credit report. You have the right to know your credit score, and your score is likely to be different at each credit bureau. So it's a good idea to request your score from all three agencies.

Credit scores affect your ability to get credit, and the interest rate you pay for credit. There's no one "score cutoff" that tells lenders to approve or deny a loan. So it's hard to say whether your score is good or bad. Each lending situation is different. Just know that when it comes to credit scores, higher is better. Here's a breakdown of FICO scores for the general population that uses credit. Do you know how your score compares?

These numbers are really important. A good credit score can mean you will pay hundreds of dollars less per year, and thousands of dollars less over the life of a loan. Just look at the difference a few percentage points can make in monthly payments on a $150,000 thirty-year fixed rate home mortgage. That's why it's important to make sure your scores are accurate, and do everything possible to improve a low score.

So, how is your FICO score determined? There are 5 components that figure into your score. They are:

PAYMENT HISTORY 35% -- Are payments late? If so, how late? How often? Which accounts?

AMOUNTS OWED 30% -- What are your account balances? Are your accounts "maxed out"?

LENGTH OF CREDIT 15% -- How long has each account been open? When was it last used?

TYPES OF CREDIT IN USE 10% -- Do you have a good mix of credit? How many accounts do you have open?

NEW CREDIT 10% -- How many new accounts do you have? How long since you opened an account? Are you in good standing? How long have you been in good standing?

As you can see, your payment history and the amount that you owe carry the most weight.

Credit bureaus collect information from a lot of different sources to try and get an accurate picture of your payment history, and how you deal with credit.

There are a lot of misconceptions about credit scores and the scoring process. In the next four screens we'll ask some common questions about credit scoring, and set the record straight.

Will a poor credit score haunt me forever?

No, a credit score is a snapshot of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually over time, as you change the way you handle credit.

Is credit scoring unfair to minorities?

No, under the Equal Credit Opportunity Act, lenders are prohibited from considering gender, race, nationality, or marital status when issuing credit. Independent research has shown that credit scoring is not unfair to minorities or to people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history.

Does credit scoring infringe on my privacy?

No, a credit score is simply a numeric summary of information in your credit report. In fact, lenders using scoring can often ask for less information about you, since they have to score to base their decision on.

Will my credit score drop a lot if I apply for new credit?

If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report, and looking for new credit can equate with higher risk. But most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. The FICO score treats these as a single inquiry.

If you've been turned down for credit, the Equal Credit Opportunity Act gives you the right to see the reasons why within 30 days. If your credit score was a primary part of the lender's decision, the lender will use the score reason codes to explain to you why you didn't qualify for the credit you requested. In reality, you shouldn't wait until you're turned down for credit to find out your credit score. You should obtain your scores six months before you apply for any new major credit, such as a car loan or mortgage. This will give you time to address issues that may be negatively affecting your scores. You can contact all three major credit bureaus by phone or online to obtain your credit scores. You should do this every year when you also obtain copies of your credit report.

Let's recap some important points to keep in mind about your credit score. Your credit score is a snapshot of your credit risk at a certain point in time. There isn't a cutoff between good and bad scores, but higher is better. Your credit score can mean the difference in thousands of dollars over the life of your loan. Higher scores lead to lower interest rates. Lower scores lead to higher interest rates or possibly not even being able to qualify for a loan when you need it. Request your credit scores from the 3 major credit bureaus annually, when you obtain your credit reports, or more often if you're going to be applying for a new car loan or mortgage. And when you get your scores, analyze them against your credit reports to see what negative factors may be affecting your scores, and take action to improve them.