Take a deep, cleansing breath. You're in a safe place. Together we're going to tackle your deepest FICO fears head-on.

First, know that you're not alone. According to a survey by Capital One (NYSE:COF) and Consumer Action about the basics of finances and credit scoring, many of us have irrational ideas about credit:

  • More than half of Americans think that age is a factor in determining their credit score.

  • A full 41% don't know that the way they have managed credit can affect whether they get a job offer.

  • Nearly 16% say that a credit score has no bearing on their credit cards' interest rates.

  • And more than half think that income is used to derive a person's overall "credit GPA."

Just to be clear: It's not, it can, it does, and it isn't.

But let's not get ahead of ourselves. Back up. Start from the beginning, which, for our purposes, means the year 2001.

Out of the darkness
It was just four years ago when the credit reporting industry gave the average card-carrying Joe unprecedented access to the banking world's divining rod -- the consumer credit score.

This three-digit secret representing our overall credit scores is what banks, employers, insurers, utility companies, and others use to define our creditworthiness. Until the amendment to the Fair Credit Reporting Act was enacted, giving us the right to see our overall credit scores, you and I had no clue where we ranked on the "hot or not" scale -- in the eyes of lenders, that is. (What did you think I meant?)

What we've learned since then is that your payment history accounts for 35% of your overall credit score. The amount of money you owe holds a 30% weight. How long you've been in the system makes up 15% of your final grade. The amount of new credit you apply for affects 10% of your score, and the types of credit (retail accounts, installment loans) has another 10% impact. (Here's more detail on how lenders keep score.)

But you're more complex than that. And so are credit scoring models.

Communication issues
Try as you might to better your credit score, you'll never really know exactly what it is your lender would like you to improve. As much as the Fair Credit Reporting Act has broken down the barriers that exist between consumers and lenders, there's still a lot of secrecy and confusion swirling around.

For example, lenders, insurers, employers, and anyone else who relies on credit scores to conduct business don't all use the same grading scale. "FICO" is often used as if it were a generic term for "credit score." But "FICO," an acronym based on the name of the company -- Fair Isaac Corp. (NYSE:FIC) -- that developed the scoring model, refers to that brand and that specific product. Its consumer arm, MyFico.com, sells FICO scores based on the information from each of the three major credit reporting agencies. The only credit reporting agency that sells the FICO-brand score to consumers is Equifax (NYSE:EFX).

The other two major credit reporting agencies -- TransUnion and Experian -- each sell a consumer score based on credit-risk formulas they developed internally. (They all partnered with Fair Isaac to develop risk-assessment scores for business clients, however.)

To add to the confusion, what you see in the credit-scoring mirror isn't exactly the same thing your lender sees in you.

  • When you shop at TransUnion, you get a Personal Credit Score ranging from 300 to 850. However, the company sells its business clients a Classic FICO Risk Score (formerly known as an EMPIRICA score).

  • Experian's consumer score is based on its own PLUS Score system, with scores ranging from 330 to 830. Its business-to-business score is called the less-catchy Experian/Fair Isaac Risk Model.

  • At Equifax, you can buy your FICO score (scale 300 to 850), the same score (called a BEACON score) that is sold to businesses.

(Here's a great post from our Consumer Credit/Credit Cards discussion board on how those numbers translate into real-life dollars, cents, and lending decisions.)

Consumer credit scores are just the icing on the actuarial cake. Over at CreditBloggers.com, credit expert John Ulzheimer, a former Equifax and Fair Isaac insider, recently demystified credit scoring models. According to him, lenders and insurance companies rely mostly on the following four kinds of scores:

Credit bureau scoring models: The cheapest and most common, credit scores generated with these models are based solely on the information from your credit reports. Lenders -- credit card companies, retailers, and the like -- use the "credit bureau risk score" to predict whether you will pay your bills on time.

Application scoring models: As complete as your credit report may appear to you (wow ... I still have an Express charge card?), there are a lot of missing pieces that reveal exactly the kind of person you are. (Financially, that is.) So-called application scoring models use both the information contained in your credit reports and information you provide on an application for the loan. This gives lenders important data points -- such as your salary, household income, tenure at your employer, and amount of time at your residence. Using this information, banks can make even more accurate predictions about the kind of customer you'll be.

Custom models: The biggest lenders have custom-built credit scoring models that can run more than $1 million to commission. Such models grab nuanced information about borrowers and potential customers -- measuring lender-specified information -- and produce the most accurate assessment of future bill-paying behavior.

Insurance credit scores: Lenders use scoring models to assess whether you are going to pay them back and on time. Insurers (homeowner and auto) have their own scores to predict whether you are likely to file a claim and whether your premiums will outpace your claims. Your insurance credit score is based on information from your credit report as well as on previous insurance claim data.

All scoring systems have one goal -- to figure out whether you are going to be a profitable customer.

But let's bring this back to you. You, too, have just one goal: to make sure that your credit file (what your credit score is mainly based on) presents the most accurate and flattering picture of you to the outside world.

Step into baggage claim
While you might not be able to stop the credit reporting industry from judging you, you can make sure that you're putting forward the best possible you.

Don't be in denial. If you don't face your credit fears head-on, you'll never get over them. If you haven't ordered your free credit reports yet from annualcreditreport.com, do so. It'll be the best $0 you'll never spend.

Don't take all the blame. According to statistics, anywhere from 30% to 80% of credit reports contain blunders. The gaffes can be anything from errors of omission (not reporting a current line of credit) to out-of-date information (saying you still live at an old address) to outright inaccuracies (claiming you have a loan for which you never applied).

Start small. Take the time to beautify your credit report by making sure the details it contains are accurate. Catching and fixing the most common boo-boos doesn't have to be complicated. Here are six ways to improve your credit score.

Let bygones be bygones. See if there are notations on your credit report that have expired and should be removed. Here's how long it takes for bad news to drop from your report.

Forgive the occasional slip-up. Late payments can have a dramatic affect on your overall credit score. But I recently learned that it's not as bad as you might think. Still, this is not an excuse to start slacking on your bills.

Let time heal your wounds. Credit scores age like vintage Bordeaux. Lenders' memories get a little fuzzy -- and less harsh with the grading scale -- as the calendar pages flip by.

Now, let's talk about your mother ...

Dayana Yochim owns none of the companies mentioned in this article. Not that there's anything wrong with that. You can leave her mother out of it. The Fool's disclosure policy is very firm but understanding.