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What Affects 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. The availability of some lenders with minimum credit score requirements benefits the borrower with higher credit score by mortgage pre-approval. There is also a chance to benefit from favorable loan terms like low interest rates. 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. Payment history is an important factor that significantly impact one’s overall credit score. Lenders mostly consider this factor before approving a borrower for financing. Alot of late payments typically affects the overall credit score. It’s good to decrease such late payment cases and avoid 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. 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. 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. There is need to keep the balances low since the higher the debt the lower the score tend to be.

Credit history also affects one’s credit score. 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. 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. 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.

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