Planning for Home loan you must check Credit Score

Planning for Home loan you must check Credit Score

Your credit score, also known as CIBIL score in common parlance, provides a numerical overview of your finances. It basically gives lenders a glimpse of your credit records and how you've handled credit dues in the past, thus forming a vital criterion for assessing your loan eligibility. Especially for a big-ticket loan like a home loan!

Below, we look at how your credit score can impact your housing loan terms and conditions.

How does your credit score impact your housing loan?

Before financial institutions lend you a home loan, they need to be assured that you have the capacity to repay the borrowed amount on time. One way your lender does this is by checking your credit score.

Credit or CIBIL score is a three-digit number between 300 to 900, calculated using your repayment history, credit utilization ratio, number of credit accounts, and the number of credit inquiries you have made in the past. This essentially provides a snapshot of your personal finances and credit handling abilities. As a result, your credit score becomes a measure of creditworthiness in the lender’s eyes and a decisive factor when assessing your home loan eligibility.

Naturally, this also impacts your loan terms and conditions, particularly eligibility and interest rates. Let's explore how.

1. How your credit score impacts your home loan eligibility

If you have a credit score of 750 or above, lenders consider you to have good financial management abilities. This means you're more likely to repay the loan EMIs timely. Hence, having a high credit score makes you a loan customer with a low risk of defaulting payments, and therefore, a more eligible customer for a loan for the lenders.

2. How your credit score impacts your home loan interest rate

Did you know your credit score directly influences your housing loan interest rates? Yes, it does! The higher the score, the more competitive is the interest rate charged on your loan. In fact, the closer your score is to 900, the better. This is because a high CIBIL score assures the lender that you're perfectly capable of paying back the EMIs without default.

How to improve credit score?

In case you don't have a high credit score, don't worry! Here are some tried and tested methods you can try to boost your score:

  • Frequently check your credit report for errors and rectify them immediately
  • Repay your dues on time
  • Maintain a low credit utilization ratio
  • Keep your credit card limits in check
  • Ensure any previous loans are closed before applying for a new one

To summarise

As evident, your credit score has a massive impact on your loan application, so it is essential to keep the score high. The tips mentioned above are definitely a good way to start making amends and improve your score slowly but surely.

But if you're good to go and ready to apply, make sure to use a home loan EMI calculator to understand your loan liabilities beforehand.