When you apply for any type of loan, the financial organisation will review your application and check if you have the necessary financial means to repay the amount on time consistently throughout the loan tenure. And, home loan is no different. To confirm your financial profile and repayment capacity, the lenders will ask you to submit various documents such as salary slips, bank account statements, ITR, etc., and also consider your credit score.
The credit score is one of the important criteria that the lenders consider to determine your eligibility. If you are wondering what credit score is and its importance in home loan, read on to know more.
What is a credit score?
Credit score is a three-digit number ranging from 300 to 900 that reflects your creditworthiness. The major credit bureaus in India like CIBIL keep track of your credit transactions and assign the score based on how well you repay the credit.
The higher your credit score and closer to 900, the better your chances of getting your home loan approved without any hassles. Generally, the lenders have a minimum credit score requirement of 720+ and it may vary from one lender to another.
Importance of credit score
- When you maintain a high credit score, it showcases to the lender that you are a responsible borrower and the lender may offer you a better deal on the home loan in terms of a discount on the interest rate.
- If your credit score is below 600, chances are high that the lenders will reject your home loan application.
- Generally, the lenders give preference to applicants with high credit scores rather than those who do not meet their minimum credit score requirements.
- If you have a high credit score, you can be in a good position to negotiate a better deal with the lender and get a higher loan.
Tips to increase the credit score
- Check your credit report frequently and if you notice any errors, report it immediately to the bureau and get it rectified as it can affect your credit score and your chances of getting loan approved.
- Make sure that you repay your loans on time consistently. Even if you miss a single EMI or delay the payment by one day, it can have a significant impact on the credit score.
- If you have credit card bills, make sure to repay the full amount rather than paying only the minimum requirement.
- Make sure to limit your credit utilisation to minimal (less than 40%) of the limit you have.
Can I get a home loan with a bad credit score?
If you have a low credit score, all is not lost. You can still get a housing loan. However, because of your low credit score, the lenders may consider it a risk and to mitigate the same, they charge a higher interest rate.
Final Word
Thus, credit score is an important aspect in getting a home loan. So, before you submit your application, make sure that you check your credit score and get it up to the minimum requirement of the lender. This will help in getting your application processed faster.