5 factors that determine your credit score in Canada

Have you ever wondered what factors come into play in determining your credit score? Here are the 5 variables you should keep in mind when optimizing your credit score.

1) Payment History

This is the most crucial factor in the list. The payment history is a report updated by your creditors, which shows information such as how many of your payments have been late, whether you have paid the amount that was agreed upon, how many past due payments you have and so on.

2) How Much you already Owe

When you apply for a loan, the lender will want to know whether you already owe to other creditors. This gives the lender an idea of whether you can actually handle more debt or not at the moment of your application.

3) The Length of your Credit History

From a creditor’s point of view, the length of your credit history helps to know whether you are a trustworthy borrower or not. The longer the credit history, the more information there is about how you handled debt in the past.

4) Frequency of Credit Application

The frequency rate at which someone applies for credit can be a good indicator of the financial situation that individual is in. The more a borrower applies for credit, the more he/she is likely to be experiencing financial difficulty and the less likely are creditors going to be willing to lend their money to that borrower.

5) Types of Credit Used

The type of credit you use can send different signals to creditors. For example, deferred interest loans can be interpreted as you not being able to put money on the side for future purchases.

Essentially, if you want to keep a good credit score, all you have to do is put yourself in the shoes of a creditor considering a potential borrower. Would you lend your money to someone who has a history of late payments and a large pending debt?

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