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Your Credit and How it affects a Loan

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Applying for a loan means that you will once again be judged based on your credit rating. Your credit rating will tell loan providers and banks if you are credit-worthy; that is, if they can risk loaning you some money. At the same time, your credit rating also determines just how much money they can give you. This even tells them what interest rates and payment terms they can offer you.

Credit rating is largely based on credit reports given out by credit bureaus in Canada. These credit bureaus pull the credit reports from a deluge of information. However, most credit rating information boils down to these factors:

-- Payment history: This is probably the most important aspect of the report. This tells your prospective creditors if you have ever been delinquent in payment or have ever skipped payment.

-- Total current loans: This sums up your current unpaid loans and compares it against your total credit limit, based on information from your existing creditors.

-- Time between credits: This indicates how long it takes before you acquire another loan. This section also informs the prospective creditor how you pay off new loans.

-- Length of credit history: This determines how long you have been borrowing money.

-- Type of credit: This is the type of credit that you have applied for and gotten, so far, like credit cards, home loans, car loans, lines of credit, and others.

The higher your credit rating is, the less likely you are to be delinquent in payments. This means loans will probably be granted under fair terms. Plus, having a higher credit rating means you can negotiate for terms that are more in favor of your current situation.