In a recent survey, only 27 percent of consumers really understood that their credit scores are used by lenders to measure risk. Your credit score is, in fact, a snapshot of your financial well-being, and lenders place high value on this three-digit number. Your score tells a lender whether or not he can expect repayment on your loan – if you even get the loan to begin with.

Generally speaking, the higher your score, the better your credit and the better your chances of getting a loan at a good rate with good terms. If your score is lower, well, you can expect the opposite – not-so-good rates and terms, if you're able to secure a loan at all. 

Your credit score is basically made up of these factors: payment history, amount of debt you carry, length of credit history, types of credit and new credit. About 60 percent of consumers have a credit score of 700 or higher. A score of 720 is considered good. If your score is below 700, it's a good idea to take action to raise it.

But how? The first and most important thing you should do is to check your credit report. Find out if the information shown on this all-important document is correct. If it's not, make it so by contacting the corresponding credit bureau or creditor, and ask that the information be fixed. You should do this in writing. 

Next, reduce your debt. Pay it down, beginning with your high interest items, and work your way down from there. And last of all, make sure you pay your bills on time, every time. 

Doing these three things will help set your credit back on track and raise your score. But it won't happen overnight. It will take time – but stay on course and soon you'll see a vast improvement.