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. The main categories of debt are secured debt, unsecured debt, installment debt and revolving debt. 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. 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. 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. Since such late payments stay on report for seven years one can recover their score by paying such debt quickly.
The next factor affecting credit score in Canada is credit utilization. This is that ratio including amount of the debt one have access to as well as that currently in 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. Lower score is due to higher debt.
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. It’s good for that specific loan to have a longer time since this affects positively on one’s credit score. 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.
The last factor is 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. Multiple application of new financing in a short period of time tends to drop ones credit score.
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