Looking back on my financial education from my parents, the first thing I wish they had taught me was what exactly credit scores were and how to manage them upon receiving my first credit card. Sadly, too many parents leave out this information when talking to their children about "saving" and "managing money responsibly", as my own had done. Simply warning your children to be responsible and frugal with their money simply does not do enough.

For those of you beginning on your journey in personal financial management, a credit score is a number that helps lenders determine your ability to make payments and the timeliness of those payments. Higher scores obviously represent a higher credit-worthiness, while lower scores can severely deter your ability to receive lower interest rates.

The importance of a good credit score might not be immediately realized by those just beginning to build up their credit, but later down the road when purchasing a home or looking to finance a new car, it can be significantly felt. Without good credit, you might find that payments are far too high to be practical for you, as "bloops" to your credit can be displayed on your report for up to ten years.

How exactly is a credit score calculated?

A FICO score is the most common means by which your score is calculated. The scores can range anywhere from 300-850 with the higher scores being better. On average, most people fall into the 600-700 range.

Currently there are three national credit reporting agencies: TransUnion, Experian, and Equifax. They use consumer information, account histories, public records and inquiries to base their credit reports. Each of these places will calculate your score differently due to the fact that the information each agency collects might be slightly different than the information that is collected by another. However, the basic range and score category should be in the same ballpark.

Typically, FICO scores are composed of the following (according to www.pueblo.gsa.gov):

• 1. 35% is based on your payment history
• 2. 30% is based on how much you owe
• 3. 15% is based on the length of your credit history
• 4. 10% is based on new credit
• 5. 10%is based on other factors like credit type

Managing your Credit

It is extremely important that you frequently keep abreast of the changes that occur on your reports from the three agencies on a regular basis. Being always consciously aware of what your financial picture looks like to lenders can make a difference in the financial security of your future.

The single most important thing you could do with a new credit history is to consistently make your payments on time! I cannot stress this enough. If you are so much as a day late with a credit card payment more than twice in a single year, the credit card companies are permitted to increase your interest rate significantly. Also, choreograph your payments to be made based on the highest-rate interest lenders being paid off first.

Secondly, try to keep your balances to a minimum. The closer to your limits you get, the lower your score dips.

What I certainly didn't know about credit scores at first was that inquiries can also affect the score. Try to keep the amount of inquiries placed on your report to a minimum, as too many inquiries can make it look like you are desperate for a loan.

How Many Credit Cards is Too Many?

It is typically believed that a healthy amount of credit cards on a report are two to three. The more credit you have available, the less you will obviously have available to you in the future. The worst cards you can add to your file are department store cards. Even though they promise huge discounts, their percentage off will be reflected in the interest rates.

Be proactive and try to be as aware as possible what kind of baring your financial actions have on your report. The information will be there for a long time!