What Affects Credit Score in Canada
The ability to borrow money plus the loan terms are highly influenced by one’s credit score. This has resulted to many wondering why did my credit score drop. The main categories of debt are secured debt, unsecured debt, installment debt and revolving debt. Having a higher credit score is beneficial in the sense that the lenders concludes that borrower will be able to repay the loan as per the agreed terms. In addition it increases the chance of one’s loan being approved given that there tend to be some lenders with minimum credit score requirements. One also gets favorable terms of such loan such as lower interest rate when getting mortgage in Canada . In determination of one’s credit score there are several factors that are taken into account since there is an impact of debt on credit score.
Among such factors affecting credit score is payment history. This is the major factor that has the most significant impact on one’s credit score. Lenders mostly consider this factor before approving a borrower for financing. There is an increased drop on one’s credit score by multiple late payments. It’s good to decrease such late payment cases and avoid carrying credit balances. This tend to have an adverse effect on the credit score with regard to home equity. One have a chance of recovering their credit score by making quick payments.
The next factor affecting credit score in Canada is credit utilization. This is that ratio including amount of the debt one have access to as well as that currently in use. Typically lenders highly consider whether a borrower make use of a higher percentage of available credit funds due to there being a chance of them missing especially those with alot of payment. Lower score is due to higher debt.
Next is credit history. The length of time that one had a particular type of credit and how long it has been on the credit report affects the credit score. This means the longer one had a specific loan it positively impacts the credit score as long as one is in good standing with such credit source. Having a good history of ability to pay loan is the goal of the lenders. Therefore having recent entries on the report does not give lenders a chance to see one’s ability to pay off the loans in the long term.
Lastly is the new credit. Mostly lenders look at one’s new credit. The essence for considering this factor is to give lenders a chance to see how one typically shops for their credit. Application for new financing in multiple times in a short period of time lowers one’s credit score.