If you've ever applied for credit to buy a car or a home, you know that lenders review your credit report to determine whether you will qualify for a loan or not. Whether you qualify for the loan, and what interest rate you pay depends on your credit score. Your credit score is made up of several factors, but the most important are whether you pay your bills on time, and how much debt you have.

Because of the current economy, banks are getting pickier about who they lend money to. Which means having a good credit score is more important than ever.

So, what is considered a good credit score? According to Fair Isaac, who created the popular FICO score, a score above 700 is considered good, a score above 750 is considered great, and anything over 800 is considered excellent. FICO scores can range from 300 to 850. The national average is approximately 680 with only 13% of people having a score above 800.

Many people that would have qualified for a mortgage or car loan a few years ago are no longer qualifying for loans. To give you an example, someone who was able to qualify for a mortgage with a score of 500 a few years ago now must have a score of 620 or higher to qualify for a mortgage today. This credit tightening is effecting the auto market as well, as GMAC recently stated that people will need a score of 700 or higher to qualify for a car loan.

Even if you do qualify for a loan, you may end up paying a higher interest rate if your score isn't in good shape. Credit card companies are looking at your payment history and how much debt you have outstanding much more closely when determining whether to extend credit or not. Those with the highest credit scores will get the lowest interest rates and the best terms.

To give you an example of how a higher score can save you money, let's look at someone applying for a 3-year car loan of $25,000. Someone with a score of 720 would pay 6.49% or $766 per month, while someone with a score below 660 would pay 11.48% or $824 per month. In this example, the person with the higher score would save hundreds of dollars over a one-year period and thousands of dollars over the life of the loan.

The best thing you can do in this economy is to make sure you have a good credit score so you get the best finance terms. The biggest factors that make up your score include your payment history, how much debt you're carrying and how long your credit history is. You can raise your credit score by paying your bills on time, keeping your credit card balances low, and by avoiding applying for new credit.