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Elements that Impact on 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. Lenders basically use numbers termed as credit scores to determine ones creditworthiness which tend to be numerical representations in one’s 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. The availability of some lenders with minimum credit score requirements benefits the borrower with higher credit score by mortgage pre-approval. 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. Before a borrower approval for financing lenders have to consider this factor. 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. 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.
The next factor affecting credit score in Canada is credit utilization. This is that ratio including amount of the debt one have access to as well as that currently in use. Typically lenders highly consider whether a borrower make use of a higher percentage of available credit funds due to there being a chance of them missing especially those with alot of payment. Lower score is due to higher debt.
Credit history also affects one’s credit score. 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. 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. 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.
New credit. Mostly lenders look at one’s new credit. They have a chance to see one’s ability to shop new credit. Low credit score is brought about by alot of new financing application in a short period of time.
This post topic: Financial
