A low credit score can hurt your ability to take out a loan, secure a good interest rate or increase a credit card spending limit. (John Raoux/The Associated Press)

The holiday season is over and, if you used credit to pay for gifts and entertainment, that bill is coming due.

The start of the new year is an opportune time to look at your credit score to see if it needs burnishing. The mechanics of improving your credit score aren’t difficult, and it’s well worth the effort if you plan on buying a home or car, moving to a new neighborhood or state or making any other major transactions.

Briefly, your credit score is a three-digit number that captures an estimate about how likely you are to repay a loan and make timely payments. Your score influences the rate lenders will charge you and the amount they’ll lend to you. A high score makes it easier to qualify for a loan priced at an attractive interest rate (considering market conditions), earn approval to rent an apartment, meet the requirements for lower insurance rates and vice versa.

Your credit score comes from a mathematical formula. The information that feeds into the formula comes from your credit report. (The three main credit reporting agencies are Equifax, Experian and TransUnion.) Five components account for much of your credit score: Your payment history; the amount you owe; the length of your credit history; your mix of credit; and new credit inquiries. The first two have the greatest weight in the calculation.

The most common credit scoring models are FICO and VantageScore, each with a top score of 850 and a low score of 300. You can improve your credit score by paying your credit card bills and other loans on time. You’ll also want to keep the amount you borrow limited relative to your income and, with credit cards, well below your borrowing limits.

From a credit score perspective, there isn’t a difference between carrying a small balance on your credit cards and paying the bill in full. You don’t need to go into debt to have a decent score, but you do need to use credit. Many people looking to improve their score use their credit cards for small regular purchases like gas and groceries and pay off the debt when the bill arrives. From a personal finance point of view, paying off the bill is an invaluable discipline.

Build up a good credit score by creating a household budget, making timely payments on loans and keeping the amount borrowed low relative to income.

Chris Farrell is senior economics contributor for “Marketplace” and a commentator for Minnesota Public Radio.