This is series 1 of a 5-series guide on credit scores, credit cards, and bank accounts. Head back to the Main Concourse to see the table of contents.

What is a credit score?

In today's world, moving money back and forth between strangers requires a high degree of trust. People and institutions are very sensitive when it comes to money.

If I loan you money, how can I be sure you'll pay it back? How do I protect myself?

That's where the credit score comes in. It's a universally agreed-upon metric that allows financial organizations to gauge how trustworthy and responsible you are.

You should care about it. At some point in your life, you'll likely get a loan of some sort:

• Mortgage (buying a home)

• Auto/vehicle loan (I don't recommend it)

• Personal loan

• Credit card

How high your credit score is will impact:

• How easily you get approved for the loan

• How cheaply you can get the loan (lower interest rates)

Over the years or decades during which you pay back that loan, the difference between a few percentage points in interest rates could amount to tens or hundreds of thousands of dollars. It's a lot.

How is your credit score calculated?

There are a few different mathematical scoring models that determine your score based on your credit report. The specific model that's used isn't important. You just need to know that your score may vary depending on what platform or software you're using to view it. Don't be shocked when you see different scores.

What you do need to understand are the variables that go into your score:

• Payment History (35%)

• Amounts Owed (30%)

• Length of Credit History (15%)

• New Credit (10%)

• Credit Mix (10%)

Payment History

The largest variable is the simplest one.

Are 100% of your payments on time? What's your track record?

Amounts Owed

How much outstanding debt do you have? Of your total available credit, how much of it are you utilizing?

Carrying a debt balance isn't necessarily bad. But if you have $10,000 in available credit and you're using all $10,000 of it, banks may interpret this as you being overextended. The natural conclusion is that you're an individual with a high risk of defaulting on your debt.

Two callouts:

• You don't need to use all of the credit that is made available to you

• The golden rule is to keep your utilization under 30%

Length of Credit History

How old are each of your credit accounts? How long has it been since you last used each of those accounts?

This is why it's important to start building your credit history early. Parents, add your kids as authorized users on your existing credit lines.

Only time can build this.

New Credit

How frequently are you opening new accounts?

This mostly matters for individuals who are just beginning to build their credit. Obviously, it looks weird if you immediately start opening credit accounts left and right. Banks may interpret that as a desperate and urgent need for money. They'd probably intervene and just reject your applications.

This matters less for multi-year credit histories.

Credit Mix

Diversity in the types of credit accounts you have are somewhat important. Mortgages, auto loans, retail accounts, student loans. You don't need one of each type - having 2-3 different will likely be good enough.

How do you build your credit score (and stay out of debt)?

Now that you know the components of a credit score, building your credit history should be straightforward. There are 4 critical things you need to commit to doing. If you stick with them, your credit score is sure to increase given time. You'll also be 99% protected from falling into a lifetime of high-interest debt.

Ranked in order of importance (in my opinion):