Credit score for the home loan is an ultimate symbol of the credibility of a borrower. It is an indication of your credit worthiness and is an important deciding factor when banks or NBFCs provide home loans.
What is the credit score?
A credit score or CIBIL rating is based on the previous loan repayment history of the borrower. This is a numeric indicator of the customer’s creditworthiness. The score is ranked on a scale of 300-900.
The credit score depends on the borrower’s
- Credit utilization level.
- Level of indebtedness.
- Loan repayment history.
The better the score, the more are the prospects of getting a home loan in a quick and easy way.
- Credit score of more than 750 is considered to be the best. This rating helps borrowers get housing loans from any bank they want, at a discounted rate of interest and processing fees.
- Credit score within 500-600 might lower the chances of getting a housing loan. The number of financial institutes offering loans also decreases.
Credit score for home loan is important because of the following reasons.
Increases the chance of getting a home loan
A good credit score can increase the chance of getting a house loan. Banks and financial institutes sense security when the loan applicant has a high credit score.
Keeps the borrower in control of the funds
When credit score is good you will get calls from several banks offering housing loans. So you can get quotes from multiple banks and choose the one which is offering the maximum loan amount at the least interest.
Lower rates of interest
Keeping in mind the excellent credit score, banks might offer lower rates of interest in order to get the customer. The processing fee and the other miscellaneous charges can be waived off keeping in mind the credit rating.
As a good credit score needed for the home loan, so let us check out the ways of getting an improved rating.
- Opt for a credit card to initiate the process of getting a credit rating.
- Make small ticket purchases so that the credit score improves.
- Take some short- term personal loans to get a good credit score.
- Do not make excessive use of the credit card.
- Prepay loans with surplus funds to boost the score.
- Check the credit card history to identify if there is any unpaid amount; default payments can eat up the credit rating.
- If a housing loan application is rejected, wait at least 2 months before making a fresh application. This is because every time the lender pulls up the report, the credit score for a home loan gets a hit.
- Monitor the credit score every year. Many people fall prey to erroneous credit rating. This can hamper the credibility to get a loan.
Maintaining a good credit score for a home loan is a matter of time and patience. Ensure regular EMI payments and getting positive credit rating is no rocket science.