It is a dream for every Indian to own a home of his own and in order to fulfil this dream one needs to know the eligibility criteria before applying for a home loan. While home loans are offered based on various factors, the interest rate may differ based on the specifications and requirements provided by the customer. This is where the credit score plays an important role while applying for a home loan
. A good credit score helps in creating the first impression while applying for a loan.
Home loan providers or financial institutions look at several variables on the credit report, one of them being outstanding debt. The credit score offers a holistic view on the financial ability of a customer and hence forms an important element in the process of a home loan.
Various banks/financial institutions may have different internal guidelines about the usage of credit scores. They may or may not have a cut-off based on the credit score. However, the majority of the new loans are sanctioned to customers with a credit score greater than or equal to 700. Therefore, higher the credit score, better the chances of your home loan getting approved with a competitive interest rate. This, however, does not mean individuals with low credit scores will not get any loans sanctioned. It is just that their chances of getting a loan sanctioned may be reduced unless this is backed by a genuine situation which resulted in the lower credit score.
The importance lenders give to credit scores makes it imperative to improve one’s score as it will help determine the cash outflow. Paying your bills on time is the first step towards maintaining a decent credit score as delays in payments like credit card dues or other EMIs may have an impact on the credit score of the borrower and re-building it into a positive score can be a lengthy process. One should also have a maximum of 2 accounts during the initial days of their career which includes a personal and a salary account for salaried employees and current account for business individuals. This is important as multiple bank accounts lowers one’s average account age which would eventually have a large impact on one’s credit score. Moreover, multiple bank accounts are a risky practice for a new credit user.
You can maintain a good Credit Score by ensuring timely credit card payment as Credit card providers regularly send data to credit bureaus which are further assessed by lenders to ascertain a customer’s credit worthiness. One should, therefore, make a list of all accounts and check recent statements on a regular basis to determine how much is an outstanding balance and the interest rate levied on it. This helps in facilitating a payment schedule/plan that provides an available budget for debt payments towards priority payments.