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What Affects 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. 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. 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. This is the major factor that has the most significant impact on one’s credit score. Lenders mostly consider this factor before approving a borrower for financing. 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. 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. In this case it refers to the ratio that includes amount of debt one have access to and that in current 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. 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. 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. Those with recent entries in the report have a low credit score.

New credit. It’s also a crucial factor that is highly looked into by lenders. 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.