It’s hard to make any kind of financial decision these days without looking at how it might affect your credit score. And no wonder! Your credit score may make the difference between getting the apartment you were looking for or qualifying for a larger phone plan or insurance rate. Of course, the most important financial transactions depend on your credit score. That’s why it’s important to know if your credit score is down and what could be causing it.
It is good to keep details of your credit score. Significant changes in your credit score may help you to identify potential cases of identity theft and fraud. But it can also help you to deal with any discrepancies in your credit report. Take the necessary steps to correct actions that may cause your credit score to drop. For this reason, many people in Canada have started tracking their credit score regularly.
Have you ever amazed, “Why credit scores are declining?” or “How can it improve?” What Is a Credit score?
Before you get into what to do when your score goes down, it’s important to understand a few things about how credit scores work. Your credit score is ranging between 300 and 900. Canada has two credit reporting agencies (also known as credit bureaus): Equifax and Trans Union. Each credit bureau maintains its own credit reports and credit scores, but they should not be too different.
Your credit report is actually a record of your past financial behavior and actions. When it comes to credit, including credit cards, loans, and mortgage payments. Lenders look at your credit score to determine and estimate your ability to repay financial obligations as agreed upon, such as mortgages and credit.
How credit score Calculated?
It is also very important (especially if you are trying to increase your credit score) to understand how your score calculated. That way, if you want to deal with any debt reduction, you can see important issues that affect your credit scores the most and work to resolve them.
There are five key factors in credit rating considerations when determining your credit score. They are as follow:
1. Your Payment History
This, by far, is the most important part of your credit score. Make repayments on time, is a big indication to other lenders whether you will pay them or not. Your credit report will also show whether the payments you made were late. How much, and whether that happened regularly to you or not.
Your payment history is not only related to your credit card payments. It includes any other credit items you may have, such as loans (car/student/personal) and any other debts you have where you make regular, ongoing payments.
2. How Much Credit Do You Have To Your Lenders?
When deciding whether to lend you money or lend you another loan, lenders want to know how much you owe to other lenders. This information helps them decide if you can handle any additional debt.
For example, if your credit cards are in place and/or credit lines are close to going out, lenders may interpret this as a major risk, as you already have a small outstanding debt. When lenders see that you have already used a good portion of your existing debt, it is an indication that it could affect your ability to repay them if they are going to add more debt.
3. The Length of Your Credit History
The longer you have a credit history and debts, the better your credit results will be. Why? Because over time you have shown your determination and ability to repay your debts as agreed.
While not the biggest factor, it is still very important. In fact, a lack of credit history lowers your score as lenders do not know your “track record” and do not know how to deal with potential financial difficulties.
4. Your Credit / Loan Requests
If you are constantly applying for new credit cards or loans, it can make it difficult for lenders to be financially struggling and in need of money. That, in turn, can make you more like a borrower. As a result, regular requests for new credit may lose your credit score.
Every time you apply for a new loan, lenders can look at your credit report, which considered a difficult investigation – and difficult questions can reduce your credit score. Your credit score also includes the number of credit accounts you just opened. If these two things are met, it could prove to creditors that you have a problem keeping payments.
Simply put, do not apply for more credit in a short period!
5. Types of Credit Used
Because different types of loans have different types of payment methods and terms, they may reveal different details about your ability to repay your loans. This is why lenders like to see different types of credit in your credit report.
Flexible loans allow you to borrow money to a certain extent, and then make regular monthly payments to pay. Your monthly payment may change from month to month depending on how much you borrow.
While an installment loan means you have borrowed a certain amount of money and made the same monthly payment over a fixed period.
It noted that every lender may interpret information in credit reports separately. Therefore, they may have different tolerance for the risks and limitations of their lending decisions.