Home is one of the most fundamental needs of an individual. Getting a housing loan is a stepping-stone in the journey towards realizing your dream. Nowadays, most of the financial institutions and housing finance companies are offering many home loans options that will assist you in simplifying your journey of home buying experience with their range of home loans and features.
Qualifying for a home loan requires many variables and checkpoints to be covered. Among them, one of the biggest criteria that lenders use to check your eligibility is your credit score. It is usually the first aspect which is considered by the financial institutions to evaluate your home loan eligibility for the rate of interest and loan amount.
A credit score above 750 is considered as good in the eyes of the lenders. A high credit score shows that you are a good borrower and you will be able to pay your debts on time. On the other hand, if you have a low score, it shows that you are a risky borrower which decreases your chances of getting approved for a home loan. So, it is important for you to first improve your credit rating and then apply for a housing loan.
Here are a few steps that you can take to improve your credit score before applying for a home loan-
When you apply for a housing loan, the lenders or housing finance companies will look at three main things i.e. your net monthly income, a down payment and your credit score. Hence, you need to review your credit report and scores consistently to see if there is an error which is responsible for lowering your credit rating. If you find any errors, you can contact your credit bureau or lender and get the errors rectified.
Your repayment history is one of the most important factors for improving your credit score. So, make sure you repay your credit card bills and loan EMIs on time which will, in turn, reflect positively on your credit report. You can plan this by getting an estimated amount of your EMIs by using the online home loan calculator.
If you are a joint applicant in a home loan, then their pattern of payments is likely to affect your credit score. Keep track of your co-applicant’s payment history, defaults and dues and make sure they clear them, so it doesn’t hurt your credit score.
Your credit score is also affected when you apply for multiple loans and credit cards at one go. It increases the credit risk and lowers your overall credit rating. In such cases, lenders may become increasingly cautious while processing your loan application.
If you have a good credit score, you will get the following set of benefits-
If you have an optimum credit rating, the chances of your loan approval are higher. A high credit score is an assurance for lenders that you are a responsible borrower with a good track record of making timely repayments.
A high credit score also enhances your loan eligibility, thereby enabling you to avail a slightly larger loan amount when you require.
A healthy credit score also gives the borrower a better negotiation power. Thus, you can expect lower interest rates and waiver of processing fees and other charges associated with your home loan.
So, a credit score is a crucial determinant that helps creditors to gauge your likelihood to repay debt. Therefore, borrowers need to build a strong credit rating to get eligible for a housing loan.