Before a lender approves your application for a home loan amount, you must assure them of your ability to repay the desired amount within a tenor. No lender wants to offer money to a customer who will miss the equated monthly instalment (EMI) payments regularly. Not only is that bad for business, but it can also be considered a waste of time.
That’s why lenders have a set of requirements that applicants must satisfy. One of those requirements is an excellent credit score. A credit score demonstrates your creditworthiness and plays a key role in whether or not you get approved.
If you must take a loan, you need a good credit score. We recommend that you should only apply when you meet all of the lender’s requirements, which often include a good credit score. Now, what scores are regarded as excellent and bad? Knowing this helps to determine if you should go through with the application or not.
Read on to learn more.
What is a Credit Score?
A credit score is a three-digit number between 300 and 900 that serves as a medium through which lenders learn your creditworthiness. Paying existing debts and not missing an EMI payment can improve a weak score.
CIBIL stands for Credit Information Bureau India Limited, and it is tasked with computing your credit score and preparing a credit report. Upon reviewing your application, the lender will likely verify your credit score through CIBIL. A score below 725 is considered a weak score, and it reduces applicants’ chances of securing home loans.
Why is Credit Score Important?
The credit score is important for determining your eligibility for a home loan. Lenders set their preferred score, and you are expected to have that score. Sometimes, exceeding the benchmark gives you an edge over other applicants.
What are the Factors Affecting Your Credit Score?
You must possess a high credit score before applying for a home loan or any kind of loan. Below are three factors to learn.
Your payment is a determinant of whether or not you get approved because it gives an insight into your credit behaviour. It shows lenders how well you handle credit, especially in the area of repayment. The payment history also contains details, such as missed payments, late payments, etc.
A quick tip:
If you have taken several loans previously and have repaid them as and when due, then you should have a good credit score. However, missing up to two months of EMI payments means that you are a high-risk borrower. Lenders hardly offer loans to high-risk borrowers and when they do, it’s always at a high-interest rate.
This refers to the amount of available debt in comparison with the amount that you use. When your credit utilization is above 30%, you can be flagged as a high-risk borrower. Ensure that you have a low credit utilization percentage to boost your credit score.
Applying for loans is nice but having a record of frequent rejections is bad because it reduces your chances of getting approval. Apply only when necessary and study the processes involved before submitting your application
How Much Credit Score is Good to Avail Yourself of a Home Loan?
If you’ve been confused about the above question, then here’s what you should know. A score of up to 725 and above is ideal for a home loan application. Lenders typically have a specific credit score benchmark, so you should endeavour to know what your preferred lender wants.
If you do not have up to 725, we recommend that you improve the score before applying. Applying with a low score not only implies rejection but also leaves a bad print on your credit record. Having a strong credit score guarantees you approval and a sizable loan amount at a nominal interest rate.
Tips to Improve Your Credit Score
Read on to find four pointers on how to improve a weak credit score.
- Avoid amassing many debts over a short period.
- Ensure that you repay all EMIs and credit card bills promptly.
- Be cautious about borrowing loans without a proper repayment plan in place.
- Talk to a financial expert to get advice on whether you can afford a home loan or not.