Anybody who is in the market for a home loan is familiar with the term credit score. An applicant’s credit score carries immense weightage on the quality of their application and can decide the Home Loan terms that may be offered to them. Your credit score is a numeric evaluation of your creditworthiness and helps lenders assess your repayment capacity and financial standing.
Applicants should ideally focus on enhancing their credit scores before applying for a home loan. It not only maximises their chances of receiving a speedy approval with beneficial home loan terms but also saves them the adverse impact of having a rejected loan application. Bear in mind that loan rejections reflect poorly on the applicant’s credit health and can discourage future lenders from extending favourable credit options.
This article highlights the importance of one’s credit score and provides tips on keeping your credit score up to mark for both – your financial health and home loan application.
Your credit score is a numeric assessment of your credit profile, judged on various financial parameters. Numerous bodies function as credit scoring agencies, however, the Credit Information Bureau (India) Limited (CIBIL) is considered a dominant authority in India, and the score awarded by the agency is popularly called the CIBIL score. Home loan lenders are keen on evaluating one’s CIBIL score to grasp their repayment capacity and tailor the lending terms accordingly.
One’s credit or CIBIL score is a 3-digit number, ranging from 300 to 900, indicating an individual’s credit health. The score is calculated based on the following factors:
- Repayment History
- Credit Utilisation Patterns
- Ongoing Debt Obligations
- Routine Financial Obligations
- Current Income Sources
The higher one’s score is, the stronger their credit profile is. Individuals whose credit score is higher than 750 can enjoy more lenient home loan terms, such as competitive interest rates, flexible repayment schedules and sizeable loan amounts.
Based on your CIBIL Score, this is how your credit report can be rated:
- 330 – 550: Very Bad
- 550 – 650: Average
- 650 – 750: Good
- 750 – 900: Excellent
An applicant’s credit score is an indisputably notable parameter amongst lenders’ home loan eligibility criteria, and applicants who fare lower than the CIBIL score benchmark may have to employ corrective measures to boost their credit scores. Doing so will not only help you avoid a home loan rejection but also position you as a strong applicant – giving you more leverage to negotiate better lending terms. Here are some popular tips to boost your credit score:
Avoid Delaying Payments: The foremost thing that negatively impacts your CIBIL score is delayed payments and missed bills. Ensure that you realign your payment schedule to suit your income inflow and set up frequent reminders to meet payment dates. Consider revisiting ongoing obligations that are getting tedious to bear and foreclosing certain loan accounts, if feasible.
Maintain a Credit Mix: The kind of loans you tend to take also impact your credit score. Managing a good credit mix will help you secure a higher CIBIL score, as it means that you can take on both secured and unsecured obligations in equal measure and service all your debts responsibly. Lenders can deem you a high-risk applicant if you have a history of too many unsecured loans, as it may put your fund liquidity under question.
Avoid Multiple Loan Enquiries: Lenders are wary of persistent loan enquirers, as it makes them appear credit hungry. Avoid frequent and simultaneous loan applications to multiple lenders and apply only with those whose eligibility parameters and loan offerings align with your financial profile.
Limit Credit Utilisation: Just because you have access to a sizeable credit line does not necessarily mean you use all of it. Ensure that you manage your credit utilisation and use only a certain amount each month, wherever applicable. Lenders take note of your utilisation ratio, as it indicates how financial stable you are and whether you can sustain your ongoing expenses yourself.
Routine Check-Ups: As a healthy financial practice, one should regularly check their credit reports to keep an eye out for discrepancies, if any, and to know how they are faring financially. Regular monitoring will allow you to take preventive measures intime, that can help boost your CIBIL score.
Applicants should invest time in improving their credit scores before applying for a home loan. However, if their need is urgent, one can consider applying with a co-applicant to enhance their home loan application and meet the lender’s credit score requirements and other criteria.
