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Dec 30th

Factors Affecting Credit Score in Canada

There is much need for one to have a good credit since it impacts on the ability to borrow money and the loan terms that one may have access to. 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. 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. 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. It adversely affect one’s credit score rating it as low or high. 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. It’s good to decrease such late payment cases and avoid 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.

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. It means that bad credit mortgage lower the credit score.

Next is 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. Having a good history of ability to pay loan is the goal of the lenders. 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. 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.

This post topic: Financial