What Affects 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. The main categories of debt are secured debt, unsecured debt, installment debt and revolving debt. 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. 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 . That said credit score is calculated based on important factors which plays a crucial role in determining the overall credit score.
Payment history. It adversely affect one’s credit score rating it as low or high. This factor is highly considered by lenders before they even approve a borrower for financing. Multiple late payments drastically drop ones credit score. 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. It’s good to ensure that one never misses a loan or credit card payment since this has a positive impact on the credit score. However it’s possible to recover one’s higher credit score by making quick payments to such debt given that such late payment stays on report for seven years.
Another factor is credit utilization. In this case it refers to the ratio that includes amount of debt one have access to and that in current use. It’s good to avoid using a higher percentage of available credit funds since it lowers one chance of getting the loan due to such missed payments. There is need to keep the balances low since the higher the debt the lower the score tend to be.
Credit history. It encompasses the length of time that has a particular credit and the time it has been on the credit score. It’s good for that specific loan to have a longer time since this affects positively on one’s credit score. 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.
Lastly is the 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.