If you want to apply for a home loan, you must meet the lender-specific requirements to get the desired loan amount. And, although the eligibility criteria may vary from lender to lender, most financial organisations have one common requirement, i.e., a high credit score.
Credit score is essentially a three digit number that ranges from 300-900. It is a reflection of your creditworthiness and the lenders score your credit score as one of the important factors to determine your eligibility. The higher your credit score and closer to 900, the better will be your chances of getting the loan approved faster.
All lenders have a minimum credit score requirement, which usually ranges between 700-750. And, if your score is less than the minimum score required to qualify for the loan, chances are high that the lender will reject your home loan application. In some cases, the lender may approve the loan but consider you a high-risk borrower and to mitigate the risk, they may levy high interest.
However, there are ways to improve your credit score, which are discussed below:
Pay off the debts
If you have taken any debts like a personal loan or a car loan, it is advisable that you pay the EMI on time diligently. Even if you miss a single payment or by one day, it will have a negative impact on the credit score and affect your home loan eligibility.
So, before you apply for a home loan, you must focus on paying off the dues. And, once you settle the debts, your credit score will improve automatically over time. You just have to get your score up to the minimum score required by the lender to get your home loan sanctioned without any hassles.
Use your credit card prudently
If you have a credit card, you may feel tempted to shop for things impulsively. However, you must know that such behaviour can be detrimental to your finances and increase your debts, which in turn affects your credit score.
If you are planning to apply for a home loan, or if the lender rejected your application due to low credit score, it is advisable that you pay off your previous dues at the earliest. Also, it would be best if you use the credit card prudently.
Just as it is important to pay the credit dues, it is critical that you don’t use the credit limit to its maximum capacity. For lenders, this reflects that your credit that you are credit hungry and may be sceptical of lending you.
In a nutshell, you can improve your credit score by using the credit card sparingly and paying off the bills on time.
Have a good mix of credit
If you have too many unsecured credit like personal loan, credit card loan, etc, it will affect your credit score, especially if you fail to repay the same on time. However, if you have a mix of secured credit like home loan or car loan, your credit score will improve with every timely EMI payment.
Maintaining a good credit score is vital to get a good deal on your home loan. You can use the EMI loan calculator to know the exact amount you must pay for the amount you want to borrow. If the EMI is high, it is better to apply for a lower amount so that you can easily repay the EMI without compromising on your other financial goals.
If the EMI is affordable and within your budget, you can easily repay the same and maintain a good credit score.