Importance of Healthy Credit Score for Home Loans

Your credit score is your master key to the world of loans and credits. If you are aspiring for a home loan , you will certainly be needing a healthy credit score. This will better the chances of acquiring the loan for your dream home.Let us first understand the term 'credit score' and how it impacts a loan applicant’s worthiness.A credit score is a number between the range of 300 to 850. It shows the creditworthiness of a borrower. The higher score makes the lenders trust the potential borrower as it highlights his financial portfolio, including – the status of his bank accounts, overall debts, and the repayment history.

Credit Score: Between 800 to 900

Consumers with a credit score within this range are considered consistent payers and reliable borrowers. They easily qualify for non-collateral loan approvals and are offered a lower rate of interest.

• Remark: Exceptionally Good Score

Credit Score: 760 to 799

This score is also a good one and comes with the tag of 'financial responsibility. This score is the result of timely payments of the loan instalments, bills, and lower credit card balances.

• Remark: Very Good Score

Credit Score: 700 to 760

This score places the consumer slightly above the average yet, not making it easy to qualify for an unsecured loan. They can get a loan but with a competitive interest rate.

• Remark: Good Score

Credit Score: Below 700

This is an ailing credit score pointing severely towards damaged financial reliability. This score is the result of multiple payment defaults, or bankruptcy and leaves bleak chances of qualifying for a loan.

• Remark: Poor Score

After having a complete understanding of the credit score ranges, start improving them so that you don’t face any hassles at the time of applying for a home loan.Here we tell you 5 effective strategies that would uplift your drooping credit score, making you a reliable consumer and a credible borrower –

Before applying for a home loan, keep a strict tab on your credit card management. Don't leave a big shopping bill pending else, this will reflect badly on your credit score. Pay the outstanding amount regularly without falling into the trap of clearing the minimum balance due.Also, make sure you keep a check on the Credit Utilisation Ratio (CUR) of your card. When you underutilise your credit limit and pay the credit card bills on time without carrying forward the balances to the next month, it helps in improving your credit score.

Your credit score is a numerical representation of your repayment record. Timely repayments escalate the credit score and vice versa. Payments of credit card shopping bills, loan instalments, utility bills, etc., must be paid in time for a good credit report. Plan smartly with the help of EMI calculators before taking any loan. Develop the habit of timely repayment of credits, and your credit score will improve.

Having a co-applicant for a home loan increases the chances of its approval, provided the combined credit score is good enough. Just as you are paying close attention to your credit score, be attentive towards the same of the co-applicant. There shouldn’t be debts, dues, or defaults.And if you are the co-applicant, make sure you ensure the loan EMIs are paid in time as delays by the principal borrower can impact your (co-applicant’s) credit score as well.

Don’t commit the mistake of applying with multiple lenders. Every time a loan application is raised, it gets registered in your name. Having multiple loan applications in your name will project you as a desperate credit-seeker and impact your CIBIL score for a home loan. So, research well and apply only once you are assured of the feasibility of the terms and the conditions.

Secured loans, like home/property loans, uplift the credit score. On the other hand, unsecured loans like personal/vehicle loans, downgrade the credit score. Try to take lesser unsecured loans or diffuse their negative impact with secured loans. When taking loans becomes unavoidable, smartly balance the credit rating this way.

Credit bureaus such as CIBIL can give you your credit report. You can view these reports to find out your credit score and also identify gaps in the report. This can help you work in a targeted manner towards the gaps and improve your score.Many think that fetching your credit report repetitively can impact your credit score negatively. However, this is not entirely true. When financial institutions fetch your CIBIL score for home loan or any other loan, it is known as a "Hard Enquiry", and fetching such reports can impact your credit score. However, when you fetch your own credit report, it is known as "Soft Enquiry" and does not impact your score.Your CIBIL report is the result of multiple factors that are well within your control. Follow the mantra of borrowing only if you can repay to keep your credit rating healthy and rising. Paying close attention to your credit history and keeping it consistent will pay you significantly in the longer run.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.