Elements that Impact on 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. 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. 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. 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. This tend to have an adverse effect on the credit score with regard to home equity. One have a chance of recovering their credit score by making quick payments.
Credit utilization. In this case it refers to the ratio that includes amount of debt one have access to and that in current 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. 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. 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. Those with recent entries in the report have a low credit score.
New credit. Lenders typically look at the amount of new credit that a borrower has when they are applying for financing. The essence for considering this factor is to give lenders a chance to see how one typically shops for their credit. Multiple application of new financing in a short period of time tends to drop ones credit score.