A credit rating is a simple number which many lenders use to determine whether or not they will give a loan or line of credit to an individual. One's credit rating is impacted by a number of factors, some of which are controllable, others of which are not.

There are three main agencies lenders go to in order to acquire an individual's credit rating: TransUnion, Equifax, and Experian. Many lenders get two or more reports, as details may differ among the agencies. Opinions differ as to which of the agencies is the best or most accurate, with factions holding strong opinions on both sides for all three of the major agencies.

The formula used by these three agencies is known as FICO, named after the Fair Isaac Credit Organization, one of the first companies to begin using credit ratings in the 1950s. A FICO score is a number ranging from 300 to 900, and roughly approximates the risk an individual poses to a lender. A rating of 300 is considered extremely high risk, while 900 indicates virtually no risk.

The FICO score is calculated based on the percentage of your total credit you are currently utilizing (approximately 30% of the FICO score), how long you have had lines of open credit (15%), the types of credit lines you have (10%), how large your past lines of credit have been (10%), and your number of delinquent payments (35%).

As a rule of thumb, a credit rating around 500 is high enough risk that many lenders will refuse a line of credit, and those that do grant one will penalize the borrower with high interest rates and difficult terms. A credit rating above 850 will grant the lowest possible interest rates and a very small down payment where applicable. A credit rating of over 650 is good enough to get favorable terms and virtually always be accepted for new lines of credit.

Many organizations offer online access to your credit rating. These sites offer reports from all three major agencies, detail why your score may be low, and offer suggestions for how to improve it. This ready access to one's credit rating information has led to the emergence of many online forums and communities in which members encourage and assist one another in raising their credit ratings.

Given the importance of favorable interest rates and terms — particularly on large credit lines, such as mortgages — it is well worth investing the time and small sum of money involved in acquiring access to your credit rating. By the end of September 2005, everyone will be able to get one free copy of one's credit report from each of the three major agencies. In fact, in many states, consumers already have this right. Even people with a relatively strong credit rating (above 700) will find marked improvements in terms as they raise their credit rating.