What Affects Credit Score in Canada
There is much need for one to have a good credit since it impacts on the ability to borrow money and the loan terms that one may have access to. This has resulted to many wondering why did my credit score drop. Credit Score is therefore the numbers used by lenders to determine the borrowers creditworthiness since they act as numerical representations in credit report. The higher the credit score tend to be an advantage to the borrower since the lenders are confident on their ability to repay the home equity loan within the stipulated terms. Borrowers with a higher credit score benefits from fast loan approval due to there being lenders with minimum credit requirements. There is also a chance to benefit from favorable loan terms like low interest rates. The following is a list of some factors that affect credit score in Canada.
One is the 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. To avoid the chances of decreasing one’s credit score it’s good for one to ensure that one do not regularly miss payments and even carrying credit balances. 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.
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. Lenders also take into account whether one uses a high percentage of available credit funds given that there is a higher chance of a borrower who frequently owns a lot missing a 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. Credit score tend to be affected by the length of time one has loans and for how long it has been on credit report. 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. 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.
New credit. Lenders typically look at the amount of new credit that a borrower has when they are applying for financing. It helps see how one shop their credit. Low credit score is brought about by alot of new financing application in a short period of time.