Undoubtedly, one of the most significant moments in one’s life is when they buy their dream home. Months and months of financial planning go into securing the home loan that will make your dream home become a reality.
When you apply for a home loan, one of the first things you will be required to obtain is a credit report, which can be requested from any of the four Reserve Bank of India (RBI) licensed bureaus, namely, the Trans Union CIBIL, Equifax, Experian and CRIF Highmark.
A credit report contains your credit score which informs lenders such as banks and lending institutions about your creditworthiness based on your repayment track record on various loan facilities availed by you over a period of time. The bureaus collect data from its members, including individual consumers and lending institutions to provide information about your credit history and creditworthiness.
A credit score between 750 and 900 is considered as very good. The closer your score is to 900, the better your chances will be of getting your home loan approved. Additionally, a higher credit score will also mean that you will be able to get more attractive loan offers, including, lower rates of interest, higher loan amounts and longer repayment periods. If your score is below 675, you may need to improve the credit score before applying for a home loan. Following the below tips can help you improve your credit score .
Keep checking your credit report
The first step is to request a credit report and evaluate it for any prospective mistakes. Even if you have been making all your payments on time, it could be possible that there is inaccurate information on your credit report, which will affect your score negatively. You must ensure that you have been paying your bills on time at least 5-6 months before you apply for a home loan to help fix your credit history. As per data collected by the credit agency CIBIL, 79% of people who have a CIBIL score of 750 and above have their home loans approved.
Pay your credit card bills on time
Before you apply for your home loan ensure that you have been paying your credit card bills on time for at least the past six months. If you are constantly late in paying your credit card bills or are maxing out your credit limit, this might be viewed as financially irresponsible behavior. Additionally, also try to follow the “30% rule”, which means that only spend up to 30% of the limit of your credit card. This helps in increasing your credit score significantly.
Pay your EMIs on time
In order to have a good credit score, ensure that you have been paying EMIs on any loans or mortgages you have on time. Banks and lending institutions will not look at you favourably to approve a home loan if you are already defaulting on other financial obligations. If your other loans are having a significant burden on you, try talking to your bank or lender to restructure your loan to allow you to pay EMIs on time.
Avoid obtaining new loans
The anticipation of buying a new home also comes with a lot of new costs, such as furniture and perhaps even the desire to buy a new car. However, refrain from taking out any loans on such products until after you have obtained your home loan.
Keep check of your co-applicants
If you are applying for a loan with a co-applicant ensure you are keeping track of their payment and credit history as well as loans to ensure that this does not hurt your credit score.
If you are going to apply for a home loan and have a low credit score, do not give up hope. All you need to do is plan out and make your payments on time for a few months and you will see your credit score increase exponentially.
(By Rishi Anand, Chief Business Officer, Aadhar Housing Finance )