In more detail
FICO weights five factors: payment history (about 35%), amounts owed including card utilisation (30%), length of credit history (15%), new credit (10%) and mix of credit (10%). The score is computed from the data in your credit report, so errors in the report flow straight into the score. Utilisation is card balances divided by card limits; keeping it low, and paying every bill on time, help most. Other countries use different scoring systems and ranges, and some lenders use their own models.
Why it matters
The score decides not just whether you are approved but the rate you pay, and on a large loan a small rate difference is a lot of money. Landlords, insurers and some employers may also check credit, depending on local law.
Example
Card balances of $1,500 on $5,000 of total limits is a 30% utilisation; paying the balance down to $500 before the statement date drops it to 10%. On a $300,000, 30-year mortgage, a score that earns 6.5% instead of 7.5% means a payment of $1,896.20 instead of $2,097.64: $201.44 a month, or $72,518.20 over the loan.