Impact of Credit Score on Home Loan Eligibility
While analysing your creditworthiness for a Home Loan, one of the most important things that a bank would go through is your credit score. Read this post to know what this score is and how it impacts your loan.
To prevent any defaults, banks now take their eligibility criteria very seriously. Home Loans are only granted to people who meet these minimum requirements that are related to the income, age and employment history of the borrowers. While these factors help them ensure that you have a stable income and will pay the EMIs on time, banks would also like to know your credit history. In other words, the bank would like to know how responsible you have been with credit in the past. To identify this, they go through something known as a credit score. What is this score? Does it impact the interest rate of your loan? Let us have a look.
What is a Credit Score?
There are now credit bureaus like CIBIL that maintain the credit history of people. Based on how you have dealt with Loans and Credit Cards in the past, these credit bureaus calculate a 3-digit score. This score helps lenders know whether or not you are a creditworthy individual.
The score ranges between 300 and 900 and the closer you are to 900, the more responsible borrower you have been. People with excellent credit scores are considered by the bank when granting a Home Loan as it helps them reduce the chances of default.
How Does Credit Score Impact the Home Loan?
Apart from helping you meet the Home Loan eligibility, the score can also help you get a better deal from the lender. Banks prefer giving loans to individuals with a score of at least 750 and above. If your score is above 750, it provides you with an opportunity to negotiate a better Home Loan deal. As the lender knows that you are a responsible borrower, they might slightly reduce the interest rate to reward you for having an excellent credit score.
What Can Be Done to Improve Credit Score?
Banks now have Home Loan eligibility calculator on their website to help borrowers know whether or not they meet the eligibility requirements of the bank. If your score is lower than the minimum score required for taking a Home Loan from a particular bank, there are a few ways to improve your score. Here are some of the most effective measures:
- If you know your credit score is low, you should try to limit the number of times you apply for a loan at different banks. Repeated loan applications negatively affect your credit report.
- Try to repay your current loans before applying for a new loan. This is especially true if your existing loan is an unsecured loan such as a Personal Loan.
- Check your credit report for any errors that might be affecting your score.
How to Check Credit Score?
You can visit the official website of CIBIL for a credit score check. The site will allow you to check your score for free, but only once in a year. If you want to check your credit report and score regularly, you can purchase a monthly or annual plan from the CIBIL website.
Make sure that you do check your credit score before applying for a Home Loan to ensure that you meet the credit score requirement of the lender and there are no errors in your report.
Using Credit Score to Get a Cheaper Home Loan
Having an impressive credit score is one of the most effective ways to get a small discount on the Home Loan interest rate. Even the smallest of change in the interest rate could help you save a considerable amount of money.
So, do check your credit report before applying for a Home Loan and you’d be better equipped to negotiate a better deal.
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