Elements that Impact on Credit Score in Canada
The ability to borrow money plus the loan terms are highly influenced by one’s credit score. In this case there has been an increased misconception with regard to what does and does not affect the score. Lenders basically use numbers termed as credit scores to determine ones creditworthiness which tend to be numerical representations in one’s credit report. Having a higher credit score is beneficial in the sense that the lenders concludes that borrower will be able to repay the loan as per the agreed 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 . The following is a list of some factors that affect credit score in Canada.
Payment history. Payment history is an important factor that significantly impact one’s overall 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. 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.
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 . 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.
Next is credit history. 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. Lenders mostly want to see a history of one being able to pay ones loan. Those with recent entries in the report have a low credit score.
Lastly is the new credit. Lenders typically look at the amount of new credit that a borrower has when they are applying for financing. They have a chance to see one’s ability to shop new credit. Application for new financing in multiple times in a short period of time lowers one’s credit score.