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Buying a new home can sure classify as one of the happiest events in anyone’s life. Whether it is your first home or another, you would always have your dreams and plans and would want them to become a reality eventually. There is, however, one thing that can strongly back up your dreams when it comes to getting your dream home and it comes down to the availability of funds to purchase your home.
Times have changed now and getting a home loan is not that scary process as many previously made it be. There are numerous financial institutions with numerous home loan plans available. But there starts the confusion- which home loan plan do you opt for? What would be the interest rate? What would be your monthly EMI and loan tenure? Answering all such questions would be easier if you have a fair idea about your home loan eligibility.
There are four main credit bureaus in India- CIBIL, Highmark, Experian and Equifax. These are responsible for tracking the credit performance and providing credit scores. CIBIL score is the most popular parameters that most banks and loan lending institutions consider today for granting home loans and other types of loans and credit cards as well.
The ways in which your credit score Impacts a Home Loan
- The exact requirement of credit score would vary from one loan lender to another. Taking the CIBIL score for example, most banks consider scores above 700 to be a good one for home loan applications. This means that if the score is anywhere above 700, the probability of your loan application approval increases. The credit score is usually a number that lies between 300 and 900. A score close to 900 indicates a good credit performance.
- With a good credit score you would be able to avail better benefits for your home loan and the home loan insurance
- A good credit score is also likely to fetch you better interest rates for home loans.
Credit scores are so important because these act as a possible indicator of your credibility. Home loans are generally high value loans. And banks would definitely not take the risk of lending the amount without doing a thorough background check of the credit performance of the applicant. Credit bureaus make this work simple by consolidating the income, expenditure and credit performance of the individuals and generating a number which is called the credit score. So what can you do to improve your credit score before you apply for a credit score?
- Start early:
If you have not focused on your credit score earlier, now is a great time to start. You would be able to generate your credit report online. CIBIL allows you to download the report for free once every year. This would help you understand your credit performance even before you apply for a home loan. So in a matter of few months you can work on your score and increase it significantly.
- Stay away from unsecured loans:
Bank overdraft, personal loan, credit card loans as well as unsecured business loans are some of the major unsecured loans availed. These are easy to obtain and require less documentation and processing time. But they can bring down your score. On the other hand obtaining secured loans and strictly adhering to the payments can improve your score. A wise financial plan would be to strike the perfect balance of unsecured and secured loans.
- Pay your credit card bills on time:
Having too much outstanding amount, owning too many credit cards and exhausting the credit card limits are all factors that can reduce the score. Even delayed payments can have an impact on the score. So clear your credit card dues and try cutting down the use of credit cards for all your transactions.
- Multiple loans can affect your score:
Having too many loans active at a time, or opening too many loans within a short period of time can also have its effects on the credit score. Too many credit requests indicate shortage of funds and this in turn influences the credibility of the borrower badly.
As a quick fix, try clearing all your delayed payments and start timely repayment of any existing debts. As a long term resolution, make it a point to keep a check on your credit card usage and avoid unsecured loans as much as possible. When you have a co-applicant for the home loan the above factors and the credit score of the co-applicant should also be considered to come to a conclusion about your eligibility in terms of the loan amount and interest rates. So understand your current situation before placing your home loan application so that months before the actual request for funds you can enhance the chances of approval and avoid all glitches in the whole process. And in the end you would also end up saving a lot of time and efforts.