Elements that Impact on 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. 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. Borrowers with a higher credit score benefits from fast loan approval due to there being lenders with minimum credit requirements. One also gets favorable terms of such loan such as lower interest rate when getting mortgage in Canada . In determination of one’s credit score there are several factors that are taken into account since there is an impact of debt on 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. Alot of late payments typically affects the overall credit score. 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. It’s good to ensure that one never misses a loan or credit card payment since this has a positive impact on the credit score. Since such late payments stay on report for seven years one can recover their score by paying such debt quickly.
Another factor is credit utilization. It entails the ratio which encompasses the debt one have access to as well as home equity line of credit . 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. 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. 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. 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.
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. Multiple application of new financing in a short period of time tends to drop ones credit score.