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. Lenders basically use numbers termed as credit scores to determine ones creditworthiness which tend to be numerical representations in one’s 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. Borrowers with a higher credit score benefits from fast loan approval due to there being lenders with minimum credit requirements. 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. 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. 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. 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. One have a chance of recovering their credit score by making quick payments.
The next factor affecting credit score in Canada is 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 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. 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.
New credit. It’s also a crucial factor that is highly looked into by lenders. They have a chance to see one’s ability to shop new credit. Application for new financing in multiple times in a short period of time lowers one’s credit score.