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Understanding Your Credit Score

May 16, 2014

A good credit report is essential to your financial well being. Credit scores are often used by lenders as a predictor of how likely you are to repay your loans. Creditors will also use this score to help determine your credit worthiness and how much you can afford to borrow. Each of the three credit reporting bureaus, TransUnion, Equifax and Experian, calculate their own credit scores that range from 300-850, with 850 being the most favorable score. Most home mortgage lenders consider a borrower with a score of 740 or higher to have excellent credit. A credit score is derived from a mathematical formula with a number of factors that can affect the formula for calculating an individual’s credit score, including the following:

  • Number and types of credit accounts
  • Length of credit history
  • Payment history
  • Severity and frequency of negative credit information, such as bankruptcies, charge-offs and collections
  • The percentage of credit used compared to the total credit available

Why Are Credit Scores Important?

Applying for loans and credit cards are two main reasons for maintaining a solid credit score. Your score plays a major role in whether you will be approved or not, how much you will be approved for, and what interest rate you will be charged. Credit scores can not only have an impact on loans and credit cards but they can have an impact on the insurance you may be looking to purchase, the home you’re looking to rent and also the business you are looking to work for. If the insurance company that you’ve been looking into factors in your credit score, this could have an effect on determining your premium. A growing trend shows that landlords and hiring employers are now requesting permission to check credit scores, and then factoring that into their final decisions.

Take the time to obtain a credit report since it is an extremely important piece to your financial future and it is continuing to have a growing impact on different aspects of life such as renting or employment. A free credit report is available from the Federal Trade Commission (FTC) via

James Oosterman is the Vice President of Melrose Bank. He can be reached by telephone at 781-665-2500, online at or on Facebook at

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