What Affects 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. 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. 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. 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.
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. 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. Since such late payments stay on report for seven years one can recover their score by paying such debt quickly.
Credit utilization. This is that ratio including amount of the debt one have access to as well as that currently in use. 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. Lower score is due to higher debt.
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. It’s good for that specific loan to have a longer time since this affects positively on one’s credit score. 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.
New credit. It’s also a crucial factor that is highly looked into by lenders. 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.