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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. 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. The following is a list of some factors that affect credit score in Canada.

Payment history. This is the major factor that has the most significant impact on one’s credit score. This factor is highly considered by lenders before they even approve a borrower for financing. Multiple late payments drastically drop ones credit score. It’s good to decrease such late payment cases and avoid carrying credit balances. This tend to have an adverse effect on the credit score with regard to home equity. 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. 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. 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. 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.

The last factor is 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. Application for new financing in multiple times in a short period of time lowers one’s credit score.

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