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Factors Affecting Credit Score in Canada

The ability to borrow money plus the loan terms are highly influenced by one’s credit score. Many people think differently on what has effect or not on one’s credit score. Credit Score is therefore the numbers used by lenders to determine the borrowers creditworthiness since they act as numerical representations in credit report. 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.

One is the 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. 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. 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. This is that ratio including amount of the debt one have access to as well as that currently in use. 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. Lower score is due to higher debt.

Credit history also affects one’s credit score. It encompasses the length of time that has a particular credit and the time it has been on 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. Having a good history of ability to pay loan is the goal of the lenders. 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.

The last factor is new credit. Mostly lenders look at one’s new credit. 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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