Everywhere you look, you see advertisements about credit scores. “Get your credit score today,” they say or, “Improve your credit score now.” Why should you? What is this mysterious credit score and what does it mean for you when you are applying for credit?

Here is your guide to credit scores. First lets look at how they are computed. They are based on five factors which are weighed differently in the calculation of your credit score. They are:

• Your payment history, which accounts for 35% of your credit score
• The debt you owe, which weighs in at 30% of your credit score
• The length of your credit history, which is computed in at 15%
• The types of credit used which impacts 10% of your score
• Recently opened credit accounts and inquiries which affect 10% of your score

The weighting above is the distribution used for the FICO score. There are other scores proposed and used by different lenders. As far as the score goes, it is interesting to note that only what is in your credit report, is considered. This may seem obvious, but it is worth pointing out to inspire you to get your free annual credit reports from the credit reporting agencies.

After all, you could be the wisest credit card user around, but if someone else is opening accounts in your name, your credit score could still be terrible. You want to make sure what is in your credit report is accurate. You also want to make sure your positive credit history is being reported. After all, your payment history accounts for a third of your score.

So what does a good credit score do for you? It decreases the interest rate you have to pay on loans. If you are a better credit risk, banks are more likely to want your business and will offer you a lower interest rate loan. The difference could be as much as 5%.

Now, what about paying off your debt? As you can see, the amount you owe affects your credit score heavily. Ideally, if you have credit cards, you want to keep the amount of credit you charge considerably below your limit. So if you have maxed out your credit cards right now, yes, you should pay down your debt. It will help your credit score.

A great tool is the FICO® Score Estimator. It will ask you a series of questions and present you with a range your credit score is estimated to be in based on your answers. At least you will know where you are starting from.

If you have determined that you need to pay down your debt, it is good to get some support. Changing your lifestyle is not easy. Sit down and write down what you currently spend your money on. Write down everything. Coffee, cigarettes, snacks, lunches, bills, loans, everything. Now look at the list and decide which of those expenses you could reduce or eliminate all together. Implement your reduction plan.

To keep you going, enlist a friend to keep you in line when you get the urge to spend money. Right now you need to cut your expenses. Stick to it. You can find more information on methods to reduce debt. Find a plan that will work for you and implement it. Whether it is picking up a second job or drastically reducing your expenses, or a combination of both, what you really need to do is act responsibly and get rid of that debt.