Your FICO score tells creditors and potential creditors how creditworthy you are. It's called FICO because the company that devised this method of credit scoring calculation was previously named Fair Isaac Corporation.

Each of the major credit reporting bureaus (Equifax, Experian, and TransUnion) also have their own scoring method. Not only do banks use these scores to determine how likely it is that you'll pay your bills, but employees, insurance companies, and landlords may also check your credit report to determine if they want to hire you, insure you, or let you live on their property.

Once you have a blemish on your credit record, it's hard to get rid of it. Time is the best antidote to bad credit, but if you feel that a credit agency is reporting incorrect information, you can ask them to correct it. You are entitled to a free credit report from each of the credit reporting agencies once a year. You are also entitled to a free credit report if you have been denied credit based on the information in that report.

There are many aspects of your financial life that may be reported to the credit bureaus, including the following:

• Foreclosure
• Bankruptcy
• Liens
• Judgments
• Late payments
• Charge-offs
• Defaults

In addition, the good financial moves you make are also reported to the credit bureaus. This includes paying on time and not overusing your charge cards.

One thing that is not considered when your credit score is calculated: Your income. It doesn't matter how much (or how little) you get paid if you can't manage your finances and stick to a budget.