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. 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. 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.
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. 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.
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. 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. 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. Therefore longer time with such loan impacts positively on the credit score as long as one has a good standing with the source. Lenders mostly want to see a history of one being able to pay ones loan. 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. It’s also a crucial factor that is highly looked into by lenders. It helps see how one shop their credit. Multiple application of new financing in a short period of time tends to drop ones credit score.