A credit score is one of the most important factors of your financial profile taken into consideration by lenders when you apply for any loan. It reflects the current status of your financial health and helps the bank assess your repayment capacity. The score is calculated based on your past payments, credit history, and current and old credit accounts.
While applying for a home loan, your credit score is the one thing the lender will check to assess the risk of lending to you. Basis your credit score, the interest rate is also decided. The lender will likely charge you a higher interest rate if you have a low credit score.
A credit score falls between 300 and 900, and most lenders prefer a credit score of 750 and above as a good profile to lend. If you want a home loan easily, your credit score should be closer to 900. Banks and other financial institutions prefer to give home loans to borrowers with a high credit score as they have a lesser probability of defaulting.
A higher credit score will put you in the driver’s seat to negotiate and get a lower interest rate when you apply for a home loan. However, many lenders offer preferential lending rates for prospective borrowers with good credit scores.
The interest rate on a home loan may vary from one institution to another, but if you have a high credit score, you can easily get a good deal. If you have a credit score of 750 and above, banks or other financial institutions might offer you home loans at a competitive interest rate.
If you pay your debts on time, keep your credit exposure low, avoid multiple credit inquiries and pay all your loans and credit card bills on time, your credit score is most likely to be on the higher side. Even if your credit score is low, you can take certain measures to improve it.
Check your credit report once every month. It is easy to check your credit score online on portals like Bankbazaar.com. If any, spot errors and report them to the credit bureaus and ask them to rectify them, if needed. Also, make sure you spend as per your repayment capacity and avoid delaying or defaulting on your debts to any financial institution.
Besides, you must also compare the interest rates of different financial institutions when you take a home loan. You can also go through the loan terms and conditions related to repayment, delay charges, tenure, etc.
The table below will help you compare the interest rates based on different credit scores. The banks offer a lower rate of interest based on higher or lower credit scores. You can compare and make a decision based on your requirements related to home loans.
Compiled by Bankbazaar.com