Pat Miller says she has learned it is bad to run up credit cards close to their limits.
Quick: What's the biggest factor that helps determine your credit score?
If you didn't know that the answer is payment history - or if you're not sure what a credit score is - you're not alone.
A credit score, often called a FICO score after the Fair Isaac Corp. that developed the scoring model, is used by lenders to predict the risk involved in giving someone a loan.
Increasingly, though, such scores are used by landlords, potential employers, and insurance companies to determine someone's financial health.
In other words, it has become a universal indicator of creditworthiness.
The score is derived from a formula, based on one's credit report, to arrive at a single number that indicates whether the person is a good, average, or poor risk for a mortgage, car loan, or added credit amount.
Understanding a credit score is especially important at this time of year, when holiday spending charged to credit cards could reach more than $200 billion, experts say.
Paying those bills late, or not at all, could hurt someone's ability to get a mortgage or the best rate on an auto loan or another card.
Counting for more than a third of the credit score is whether payments are on time, including credit cards like Visa and MasterCard, department store cards, and car loans and mortgage payments, Fair Isaac said.
Also considered is whether a consumer has filed for bankruptcy, has gone through a foreclosure, or has wage attachments or liens against him or her.
Finally, how late the payments were, how much was owed, and how recent and how many late payments there were also are factored into the payment history, the scoring firm said. For example, a 60-day-late payment made a month ago will have more impact on a score more than a 90-day-late payment from five years ago.
The credit scores by Fair Isaac range from 300 to 850, with most people in the average zone of the 600s and 700s. The median score reported by Fair Isaac is 723.
Still, few people understand the credit score. For example, the Consumer Federation of America found in a recent survey that only 20 percent of those surveyed knew that making only minimum payments on an account will lower a cardholder's score.
Pat Miller, of Toledo, admits to knowing "doodley" about credit scores. She thought she had a great history because she was paying her one credit card bill on time.
"I never missed a payment, never got behind," said the 48-year-old oil-refinery worker.
But she ran up that one credit card close to its limit, a no-no for someone striving for a high score. Including the card, a mortgage, and a car loan, Ms. Miller estimated she owed about $15,000 at one point.
"What I've [learned] is that it's bad to be close to maxxed out on your available credit," said Ms. Miller.
Approximately 30 percent of someone's score is based on the amounts owed on all accounts.
Owing money on accounts does not automatically mean a lower score. The score considers the amount owed on all accounts, as well as which type of accounts are involved, because when a high percentage of a person's available credit has been used, it can be a sign the person is overextended and is more likely to make late payments or to skip them, experts say.
A consumer with an average score of 707 who maxxes out all his revolving credit can expect his score to drop to 637 to 687, a Fair Isaac calculation shows. Conversely, a score of 707 can be raised by 50 to 70 points in two years if credit card balances are paid off.
Perhaps the biggest misconception about the credit score is that income or assets are used to figure it, said Craig Watts from Fair Isaac.
"How you handled credit in the past is all that matters," said Mr. Watts.
Fifteen percent of the total score is for length of credit history. In general, a longer credit history will increase the score because the age of the oldest account, the age of the newest account, and an average age of all of the accounts is considered.
People with relatively short credit histories should not open numerous accounts quickly, or it likely will drop the credit score, experts say.
Fair Isaac acknowledges that people tend to have more credit today and to shop for it more frequently, but said research shows that opening several credit accounts in a short period represents greater risk, and thus can lower the credit score.
About 10 percent of the credit score is based on new accounts, how many and how quickly.
Asking for credit or applying for credit could hurt one's score if he or she asks several companies for information, Mr. Watts said.
However, a bank checking a score every quarter as part of the bank's account management or credit card companies sending a pre-approved offer will show up on a credit report but will not downgrade a score, experts said.
Toledoan Bernard Williams is struggling to repair his credit after a history of job losses, foreclosures, late child support payments, and tardy medical bills.
"My credit score is now 565," he said. "That's not good and it's definitely not 720."
The executive director of the Urbane Knights, which provides job placement and other services for ex-convicts, said, "When I had a good job, I paid my bills and didn't really lend too much thought to what my credit score was. But once it starts showing derogatory marks, those are hard to get off."
He is working with a credit counselor to establish a payment plan with his creditors, aiming to pay off the smaller amounts first and work his way through his list of creditors.
Re-establishing credit and making payments on time after a period of late payments will help raise a score over time, experts said. A missed payment on a spotless record will hurt more than if the report already had multiple negative items, reports Fair Isaac.
Finally, 10 percent of a score is determined by the types of credit in use, to see if the mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans is "healthy," as determined by the credit bureaus.
Closing credit-card accounts just before applying for a home loan has less benefit to a score than reducing how much is owed on each credit card, Mr. Watts said.
Ron Patton, president of the Mortgage Bankers Association of Northwest Ohio, said a person's entire credit report is considered when he or she is seeking a mortgage, and "potential red flags" like slow payments, credit cards with high balances, and a previous bankruptcy are weighed in the decision on the loan application.
The interest rate on a car loan or credit card is directly tied to the credit score, said Mr. Patton, vice president of lending for Toledo Area Community Credit Union.
For example, he said, a score of at least 720 would be considered an A+ rating, giving someone a 6.24 percent rate, while a borrower with a score of 680 to 719, considered an A rating, would get a slightly higher rate of 6.5 percent.
The American Bankers Association estimates that a borrower with a score of 760 could pay 3 percentage points less in interest on a mortgage than someone with a score of 560.
Raising a score by 30 points saves about $76 a year in credit-card finance charges alone, according to Providian Financial Corp., a major credit card issuer.
Contact Mary-Beth McLaughlin at