A good credit score can significantly improve your chances of obtaining a big money loan to acquire the home you always wanted. Credit score are values that are ascertained after analysing an individual’s credit files and are used to determine whether a person is credit worthy or not. Banks are quick to deny loans if credit scores do not meet their prescribed limit. Therefore, it is imperative that this score is improved before applying for a home loan.
While different banks and housing finance companies set varied limits on how high or low these scores should be before deciding on rolling out a home loan, general consensus states that if your CIBIL score is above 700, you are in a good position to be considered eligible by most established banks and financial institutions. However the chances of being denied a home loan might increase if your score falls below this figure.
Credit scores can be adversely affected by huge balances on credit cards. Clearing these amounts can have a positive effect on your credit score and increase your chances of acquiring home loans in future. Scrutinizing your credit report from time to time, say, on a monthly basis, can highlight your weak points and provide a clearer picture of what needs to be done to raise your credit score.
In recent times, banks and financial houses have relied solely on credit scores to determine whether you are eligible for a home loan or not. Thus, it is absolutely crucial that a high credit score is maintained on a consistent basis.
Paying your credit card bills and EMIs on time can also go a long way in improving your credit score. Timely payments are a major factor in ascertaining your credit worthiness and can make a major difference in swaying banks in your favour.
To increase the chances of acquiring a home loan, make sure any loans that you no longer use are closed and only the ones which reflect timely payments are kept open. By reducing the risk of exposure to unused loan accounts, you can improve your eligibility with regards to the loan amount the bank ultimately decides on.
Even if you have never applied for a loan before or taken any kind of credit in the past, it is vitally important that you start putting together a sound history of responsible credit usage through various means such as personal loans or credit cards. This could prove to be extremely useful if you plan on applying for a home loan in the future since credit bureaus determine credit scores based on the borrower’s track record.
FAQs regarding your credit score when applying for a home loan
- Do liquid assets play a part in helping improve my credit score?
Yes. The more liquid assets that can be verified by a lender, the better. Accumulation of liquid assets such as stocks, bonds, life insurance policies etc, showcase the financial stability of the applicant.
- Does my employment status have an effect on acquiring a home loan?
An applicant with a few years of steady and consistent employment, which shows a steady inflow of funds or an improvement in remuneration over a course of time, is more likely to be looked upon favourably by banks when it comes to granting home loans.
- Will applying with different lenders hamper my credit score?
Applying all at once gives lenders an impression of financial instability and can severely dent your chances of obtaining a big loan. Instead of applying for loans at a variety of different banks within a short span of time, space out your loan applications over a broader time period. When a lender checks your credit score it leaves behind a credit application search 'footprint' on your score. This tends to result in a negative impact on your credit score.
- Will paying off an outstanding collection amount help increase my score?
Paying off a collection amount is definitely advisable, but remember that it will stay on your credit report for a period of up to seven years. However, ensure you do not have any outstanding dues over a period of at least six months prior to applying for a home loan.
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