Once you have zeroed-down the property you want to buy, the next step to complete the purchase is to look for the best lender and apply for a home loan. You may invariably research about the different lenders and check the offers. But you must know that your chances of getting the loan application approved or rejected greatly depends on one critical factor, i.e., your CIBIL score or credit score.
The financial organisations in India consider the credit score as one of the critical factors to determine your home loan eligibility. If you are wondering what a credit score is, read on.
A credit score is a three-digit number that typically ranges from 300 to 900 and it reflects your creditworthiness based on your credit history and credit behaviour. Your credit score is derived based on your repayment history, the credit you have availed in the past and your repayment pattern.
All lenders have a specific minimum credit score requirement for approving the home loan. And while the minimum requirement may vary from lender to lender, it generally ranges from 720 to 750. If you have a higher credit score, you will have better chances of getting the loan approved faster without any hassles. Also, you may get attractive deals on the loan offer. But if your credit score is low or does not meet the lender’s minimum requirement, your loan application may get rejected.
If your credit score is low, all is not lost for you yet, you can use the below tips to improve your credit score.
- Pay off your dues on time
One of the most effective and definitive ways to improve your credit score is to repay the dues on time. If you have any outstanding payments like credit card bills or a personal loan, repay the EMIs on time. As you repay the amount on time consistently, over a period, your credit score will automatically improve.
If you are struggling to repay the EMIs, you can use the home loan EMI calculator to determine the amount that you can easily afford to repay and negotiate with the lender to restructure to EMI so that it is easier for you to repay the same.
- Avoid taking too many unsecured loans
Taking multiple unsecured loans like credit card loans or personal loans can make you appear as a high-risk borrower for the financial organisation. So, apply for such loan only during an emergency or when it is necessary. However, availing a secured loan like a car loan can add to your credibility if you repay the same on time. So, having a good mix of secured and unsecured loan can help you improve your credit score before applying for a home loan.
- Try to avoid being a co-applicant
If you have signed as a co-applicant for any time of loan with your friend or relative, chances are high that your credit score may suffer if they fail to repay the amount on time. So, if you are thinking of applying for a home loan, it is better to avoid signing as a co-applicant for a few months so that you can keep your credit score.
- Don’t settle your loans
There may be times when you may enter into an agreement with a lender or a bank for ‘settling the credit card bills’ for an amount that is lesser than the original due amount. What may seem like a boon at the time, may prove to be detrimental for your financial credibility in the long run, especially if you plan to apply for a home loan.
Such activities are reported in the credit report, and it may work against you when you apply for a loan in the future.