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. The main categories of debt are secured debt, unsecured debt, installment debt and revolving debt. The higher the credit score tend to be an advantage to the borrower since the lenders are confident on their ability to repay the home equity loan within the stipulated terms. The availability of some lenders with minimum credit score requirements benefits the borrower with higher credit score by mortgage pre-approval. 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. 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. There is an increased drop on one’s credit score by multiple late payments. 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. One have a chance of recovering their credit score by making quick payments.
Credit utilization. It entails the ratio which encompasses the debt one have access to as well as home equity line of credit . 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. 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. 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. The essence for considering this factor is to give lenders a chance to see how one typically shops for their credit. Multiple application of new financing in a short period of time tends to drop ones credit score.
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