As an adult almost everything you do revolves around your credit. Your ability to purchase a home, a car, a big screen TV. It also affects your insurance rates, renting an apartment and even getting a job.

So now lets talk about the facts. The first thing to know is that there are 5 components that are factored into the algorithm used to calculate credit. They are:

· Payment history

· Amounts owed

· Length of credit history

· New credit

· Type of credit used

Your payment history is obviously critical to your overall score. Late payments on most anything will damage your score as much as 100 points per instance. Making a vehicle or mortgage payment late is a cardinal sin.

The amounts you owe are the second most important part of your credit make up. For real purposes your ratio can include up to three mortgages and two car payments without suffering negative effects. It is the revolving debt where most consumers get into trouble. Revolving debt is basically any credit card debt. This includes your Visa, MasterCard, Discover, and AMEX cards as well as gas cards and department store cards. I counsel consumers daily that have credit scores in the low 600′s. "But we've always made our payments on time" is the biggest single statement I hear. Yeah, but..................Any time you have a revolving account and you've used over 30% of the available credit, your score will suffer. Any time you exceed 50% your score is going south in a hurry! One instance is bad but if you have five credit cards and they are all maxed out, YOU GOT TROUBLE!!! The obvious answer is to stay below the limits and never ever buy something like furniture or a TV using "in house" financing. You are automatically reported to the bureau's as maxed out. If you must make a large purchase, it is always best to use your Mastercard or Visa to make those purchases and stay under the limit!

The next item used in determining your credit score is length of credit history. Yes, lenders want to see stability and nothing demonstrates that more than someone who has been extended credit and used it wisely for a long period of time. And on that note, if you have credit accounts that have been open for years but you haven't used them in a long time, DON'T CLOSE THEM, simply to have a clean credit report. LEAVE THEM OPEN! Your score will suffer if you close them.

Next we have new credit. Applying for credit has become routine in this country. The average person has over ten inquiries on their report at any given time. If you need credit, apply for it. But do it sparingly. Lenders will look at the amount of new credit you've been granted in the previous two years and scrutinize you. They want to know why and for what. Their major concern is whether you are overextending yourself. Furthermore, numerous inquiries can be looked upon negatively. The average inquiry knocks two points off your score and is there for 18 months to 2 years. Too many recent inquiries tells a lender you are shopping desperately for credit and believe me, they'll run for the hills.

Finally, the last item that makes up your credit score is the type of credit used or your "mix". Ideally, you want one house payment, one vehicle payment, 2-4 bank cards with balances below 30% of available credit. Yet you can get away with subsequent mortgages and vehicle payments to a point.

So now you know the absolute facts when it comes to a FICO score formula. The next biggest statement made to me on a daily basis is "that's not reality".And its right. In today's tough financial climate people are subsidizing income with credit cards. They are robbing Peter to pay Paul when it comes to their mortgages and vehicle payments. The case can be made both ways as to who's fault it is, but at the end of the day fault is irrelevant. What you do to get out of a negative credit situation and what you can do to fix it is the only important thing.

First, getting out of it is really quite simple. Change your spending habits! Your personal affairs should be run like those of a business. A business goes bankrupt if the income doesn't cover the expenses. As far as fixing it goes, there are many credit restoration companies out there, but beware. The industry is full of charlatans.

If you need to use a credit repair service, make sure you interview them thoroughly. Feel free to check my company's background and references at www.creditcardanddebt.com.

You should never have to pay a lot of money "up front." Nothing more than a few hundred dollar set up fee is acceptable. If they want it all up front, run far and fast. Pay on performance.