Before you apply for housing loans or a loan against property, it is imperative that you obtain your credit report from any of the country’s four credit bureaus, i.e. CIBIL, Experian, Equifax and Crif High Mark, which will contain your credit score. A credit score is a number based on analysis of your credit files to represent your credit-worthiness. Housing finance companies and lenders use this credit score to determine if you qualify for a loan, at what interest rate, and at what credit limit. So, what is a good credit score? For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above is considered to be excellent.
While a high credit rating indicates a high level of trustworthiness and makes you an attractive borrower, a low score, on the other hand, will decrease your chances of getting a home loan approved. So, if your score is below 675, it’s essential that you clean up your credit report.
Here are a few steps that you can take to improve your credit score:
Keep a check on your credit report
When you are applying for a home loan, the housing finance companies will look for three main things viz; a steady income, a down payment and a solid credit history. Hence, review your credit report i.e. check credit score regularly to see if there is any error that is hurting your credit score. If there is, then you can rectify the errors by contacting your lender.
Pay your credit card bills and other credits on time
Before applying for a home loan, make sure you haven’t been negligent in paying your credit dues at least for the past six months because, housing finance companies may see it as an irresponsible behaviour if you max out on your credit card every now and then. So, make it a point that you pay the entire amount of your credit card bill on time.
Make timely repayments
Repayment record is one of the most important factors for improving your credit score. So, make sure you repay your credit card dues and/or your EMIs regularly which will, in turn, reflect positively on your credit report.
Track the payments of your co-applicants
If you are a joint applicant for a loan taken by someone else, then their pattern of payments is likely to affect your credit score. Keep track of your co-applicant’s payment history, defaults and dues and make sure they clear them, so it doesn’t hurt your credit score.
Don’t be credit-hungry
To get the best deal possible, do not make enquiries or land up applying at 10-15 financial institutions for home loans. Each time you enquire, it gets registered against your name and indicates that you are credit-hungry and also, it lowers your home loan credit score. If you are currently looking to apply for home loan, contact us here!
Achieve the right mix of secured and unsecured loans
Secured loans are home loans which are considered to be asset creation hence impacting your credit score positively, on the other hand, unsecured loans are personal loans, car loans, etc. which generally impact negatively. Therefore, you should try and minimize the unsecured component of your credit portfolio to influence your credit score positively.
Achieving good credit scores is important as it gives you attractive home loan interest rates and also increases your eligibility amount. Hence, don’t be disheartened if your score is low. Just manage your payments promptly and give yourself a few months for your credit score to climb. Visit Home Loan Interest Rate page to know more about the ongoing interest rates on home loans.