The ability to borrow money plus the loan terms are highly influenced by one’s credit score. 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 . The following is a list of some factors that affect credit score in Canada.
Among such factors affecting credit score is payment history. This is the major factor that has the most significant impact on one’s credit score. Before a borrower approval for financing lenders have to consider this factor. 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. 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.
Credit utilization. In this case it refers to the ratio that includes amount of debt one have access to and that in current 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.
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. Therefore longer time with such loan impacts positively on the credit score as long as one has a good standing with the source. Seeing the history of one ability to pay the loan is what lenders want. 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.
Lastly is the 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.
