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. Many people think differently on what has effect or not on one’s credit score. Credit Score is therefore the numbers used by lenders to determine the borrowers creditworthiness since they act as numerical representations in 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. 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 . That said credit score is calculated based on important factors which plays a crucial role in determining the overall credit score.
Payment history. Payment history is an important factor that significantly impact one’s overall credit score. This factor is highly considered by lenders before they even approve a borrower for financing. Multiple late payments drastically drop ones credit score. It means that regularly missing payments as well as carrying credit card balances decreases ones credit score. Therefore it’s good to avoid missing a loan or credit card payment. However it’s possible to recover one’s higher credit score by making quick payments to such debt given that such late payment stays on report for seven years.
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. It means that bad credit mortgage lower the credit score.
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. 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. Therefore having recent entries on the report does not give lenders a chance to see one’s ability to pay off the loans in the long term.
Lastly is the 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.