Factors Affecting Credit Score in Canada
Having a good credit is of utmost importance due to it’s adverse effect on one’s ability to borrow money as well as the terms of that loan. Many people think differently on what has effect or not on one’s credit score. Credit Score is therefore the numbers used by lenders to determine the borrowers creditworthiness since they act as numerical representations in credit report. This means that having a higher credit score is an advantage since it signals to lenders that the borrower have higher chances of repaying the loans as per the agreed terms. Borrowers with a higher credit score benefits from fast loan approval due to there being lenders with minimum credit requirements. One also gets favorable terms of such loan such as lower interest rate when getting mortgage in Canada . That said credit score is calculated based on important factors which plays a crucial role in determining the overall credit score.
One is the payment history. Payment history is an important factor that significantly impact one’s overall credit score. This factor is highly considered by lenders before they even approve a borrower for financing. Alot of late payments typically affects the overall credit score. It means that regularly missing payments as well as carrying credit card balances decreases ones credit score. Therefore it’s good to avoid missing a loan or credit card payment. Since such late payments stay on report for seven years one can recover their score by paying such debt quickly.
Credit utilization. It entails the ratio which encompasses the debt one have access to as well as home equity line of credit . 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. There is need to keep the balances low since the higher the debt the lower the score tend to be.
Credit history also affects one’s credit score. It encompasses the length of time that has a particular credit and the time it has been on 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. Seeing the history of one ability to pay the loan is what lenders want. Those with recent entries in the report have a low credit score.
New credit. Lenders typically look at the amount of new credit that a borrower has when they are applying for financing. The essence for considering this factor is to give lenders a chance to see how one typically shops for their credit. Multiple application of new financing in a short period of time tends to drop ones credit score.