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. Lenders basically use numbers termed as credit scores to determine ones creditworthiness which tend to be numerical representations in one’s 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. It also helps one get favorable loan terms including low interest rates than those with lower credit score. That said credit score is calculated based on important factors which plays a crucial role in determining the overall 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. This factor is highly considered by lenders before they even approve 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. 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. One have a chance of recovering their credit score by making quick payments.
The next factor affecting credit score in Canada is credit utilization. It entails the ratio which encompasses the debt one have access to as well as home equity line of credit . 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.
Next is credit history. Credit score tend to be affected by the length of time one has loans and for how long it has been on credit report. Therefore longer time with such loan impacts positively on the credit score as long as one has a good standing with the source. Having a good history of ability to pay loan is the goal of the lenders. It means that recent entries in the report does not give a chance to see borrower ability to repay the loan in the long term.
Lastly is the new credit. It’s also a crucial factor that is highly looked into by lenders. 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.
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