The ads run on TV 24 hours a day, sometimes to catchy music: Get your free credit report! Find out what your credit score is! Save money!

But what are these things and why are they important?

"A credit report is simply a compilation of your credit references," says Maxine Sweet, vice president of public education at Experian, one of the three credit reporting agencies.

Each time someone applies for credit -- a credit card, a mortgage or a car loan -- that information is reported to the credit reporting agencies: Equifax, Experian and TransUnion.

In the old days, credit managers at companies to which one applied for credit manually checked credit references. Over time, companies were founded to gather credit information each time someone applied for credit. This became the credit report. Then, a technical way to evaluate the credit reports using a formula to compare the credit histories of everyone who applies for credit was created by FICO, formerly Fair Isaac Corp. This is the credit score, often called the FICO score. From that point on, credit managers could look at just a number to see what type of credit risk a particular person is.

What's the score?
The FICO score is based on five aspects of a person's credit management and values some behavior more than others.

Credit score components and weights

• Payment history: 35 percent • Amounts owed: 30 percent • Length of credit history: 15 percent • New credit: 10 percent • Types of credit used: 10 percent

Sweet says people should "not focus on the number. They should understand where it falls in the range for that model and focus on what is in the credit history that influenced that number."

Nevertheless, the higher your credit score, the lower the interest rate you will get for loans or credit cards. Credit scores range from 300 to 850. You have to pay to get your credit score, but you can get see your credit score range by using Bankrate.com's FICO score estimator.

Thanks to the Fair and Accurate Credit Transactions Act, or FACT Act, of 2003, everyone is entitled to a free credit report from each of the reporting agencies each year. You can get your reports at the same time or space them out throughout the year, which is good way to monitor your credit. You can get your report at annualcreditreport.com, the official site to get your free reports.