When you apply for a home loan, you may inevitably come across the term ‘credit score.’ If you are not sure what it is or its importance with regards to home loan, we are there to guide you.
A credit score is a three-digit number that ranges from 300 to 900. It reflects your creditworthiness based on your credit history. The various credit bureaus like the CIBIL keep track of your credit history and based on your repayment patterns, they derive your credit score.
When it comes to applying for a home loan, all financial organisations have a minimum credit score requirement for approving the loan application. The minimum requirement ranges from lender to lender, and it usually ranges from 720 to 750.
If you have a higher credit score, i.e., more than the minimum score required by the lender, you will have a better chance of getting your loan approved faster. Also, you may get an attractive discount on the interest rate. In contrast, if your credit score is low, or you have had a bad credit history, the lender may charge higher interest on the housing loan or reject the loan application.
But if your credit score is low, you can use the below tips to improve your credit ratings and get your loan sanction.
·Repay the outstanding amount
If you have any outstanding payments like credit card bills, personal loan EMIs, etc. Make sure that you repay the same diligently on time. As you continue to repay the loan, over a period, your credit score will automatically improve.
But if you are struggling to repay the debt due to lack of sufficient funds, you can try negotiating with the lender to revise the EMI structure so that it is affordable for you. This will be a win-win situation for both you and the lender.
·Avoid applying for too many credits at the same time
One of the most common reasons why many people have a low credit score is that they apply for multiple unsecured loans at the same time. For example, if you apply for a credit card loan and a personal loan at the same time, financial organisations may believe you are credit hungry and may categorise you as a high-risk borrower.
However, when you get a secured credit like a car loan or a home loan, it will add to your financial credibility. Having a good mix of secured and unsecured loans can help you improve the credit score before you apply for a home loan.
·Be wary of being a guarantor
If you have signed as the guarantor for any of your friends or relatives who have availed of a loan, your credit score may get affected if they default on the EMI payments. So, if you want to apply for a home loan soon, it is better to avoid signing as a guarantor so that your credit score does not get affected.
·Try to avoid debt consolidation
If you are cash strapped, and have multiple debts, you may want to consider debt consolidation, wherein you can combine the different debts into one and pay a lesser amount than the actual due. While this may help you settle your debts, it may have a significant impact on your financial credibility and the credit score. So, if you are applying for a home loan, avoid debt consolidation and try to settle the debts in full as much as possible.