According to a recent survey from Consumer Federation of America (CFA) and VantageScore Solutions, LLC, more than 40 percent of respondents incorrectly thought a person's age is among factors used to calculate a credit score. And only 18 percent understood that a low credit score on a typical auto loan would increase loan charges by more than $5,000.

Knowing the basics of a credit score is the first step to managing your credit and improving your score. Here are the five components that make up how a credit score is calculated:

• Payment History. Your payment history makes up 35 percent of your credit score; therefore, paying your bills on time, by or before their due date, is essential to building a good credit score.
• Amounts Owed. How much debt you owe accounts for 30 percent of your credit score, regardless of whether you pay your bills on time, if you have a high debt-to-credit ratio, your score will be negatively affected.Try keeping outstanding charges at or below 30 percent of your available credit limit. You should avoid accumulating debt on credit cards. If you do use them, try to pay the balance off monthly. Building an emergency fund for unexpected expenses will help. Pay down your debt, and use cash for emergencies.
• Length of Credit History. How long you've been using credit accounts for 15 percent of your score, so establishing good credit habits early is key. If you are just building your credit history, be sure to make payments on time and keep your debt low. Don't close older accounts even after they've been paid off as this will negatively affect your score.
• New Credit. The number of accounts that have been opened in the past six to twelve months, how many recent credit inquiries have been made, how long it's been since you've opened any new accounts, and how long it's been since you've had any credit inquiries all make up 10 percent of your credit score. Be cautious when adding new credit card accounts, and don't add too many new accounts at one time as this may lead you into debt and serious trouble.
• Credit Mix. The different types of accounts you use—credit cards, installment loans, mortgage loans—all make up 10 percent of your credit score. It's not essential to have one of each type of account but having credit cards as well as installment loans, along with a good credit history can help raise your credit score.

New FICO Credit Scoring Rules May Positively Affect Your Score

FICO scores, credit scores created by Fair Isaac Corporation, are what 90 percent of top lenders use to help them make billions of credit-related decisions each year. Your FICO score is calculated based solely on information in consumer credit reports maintained at credit reporting agencies. Over the past two years, FICO has implemented new credit scoring rules that could positively affect your credit score.

If you have a large outstanding medical bill from a hospital, even if it's been referred to collections, it will no longer impact your credit score. Under the new rules, medical bills of any size will no longer affect your score.

Paid or settled accounts with collections agencies will also no longer be a factor in your credit score. And unpaid collection accounts with a repayment plan in place will not factor into your credit score—an incentive to pay your debts even if they are old and in collections.

As of July 2017, credit reporting agencies were to start removing tax liens and civil judgments from consumer credit reports if the information did not provide complete details on a consumer, such as a person's full name, address, Social Security number, or date of birth.

If you are looking to improve your credit score - focus on paying all your bills on time, and significantly reduce your debt. These two factors together account for 65 percent of your credit score.

To order your free annual credit report, visit annualcreditreport.com.