- By Aditya Pratap Singh
- Tue, 11 Feb 2025 04:16 PM (IST)
- Source:JND
Importance Of Credit Score For Home Loan: If you are looking to avail a home loan, here is an important thing to keep in mind. It can affect or lower your credit score. This score affects the approval and interest rates you get from lenders. Since the RBI has cut the repo rates by 25 basis points, the rates are likely to come down. However, banks are yet to announce interest rate cuts, giving you enough time to strengthen your credit profile and get better terms.
Why is a credit score important for a home loan?
A credit score tells about your financial discipline and ability to manage debt. Lenders decide about your risk level and loan eligibility based on your credit score.
How does your credit score affect your chances?
- 750 and above: Easy approval and lower interest rates.
- 700–749: Chances of approval are good, but rates may be slightly higher.
- 650–699: Approval is possible, but terms are strict and rates are high.
- Below 650: Difficult to get a loan; banks may demand a co-applicant or a higher down payment.
A higher score not only improves your chances of approval but also helps you get a home loan at competitive rates, saving you lakhs of rupees over the loan tenure.
Steps to improve your credit score
- Pay bills and EMIs on time
Your payment history has a big impact on your credit score. Paying your bills and EMIs before the due date reflects your credibility to lenders.
- Keep credit utilisation low
Avoid maxing out your credit cards. Aim to utilise less than 30% of your credit limit to maintain a healthy score.
- Avoid applying for multiple loans
Applying for multiple loans simultaneously can lower your score, as it reflects excessive dependence on loans.
- Check for errors in your credit report
Errors in your credit report, such as incorrect loan entries or late payments, can hurt your score. Review your report regularly and correct errors.
- Maintain a balance between secured and unsecured loans
Showing a balanced use of secured loans – home, car loans; and a mix of both, unsecured loans – credit cards – can have a positive impact on one’s score.
How a good credit score can help you get the best home loan
A good credit score not only increases your chances of getting approved but also gives you the power to negotiate with the lender to get the best deal:
- Lower interest rates
Banks offer lower interest rates to applicants with good credit scores. This means the EMI burden will be less.
- Quick loan approval
A good credit history speeds up the loan approval process, as banks consider you a low-risk borrower.
- Flexible loan terms
Lenders can offer better repayment options, such as a longer tenure or a higher loan amount.
Other tips to improve loan eligibility
Pay more down payment: Donating 20-30% of the property value will reduce the loan amount and interest burden.
Apply with a co-applicant: If your score is low, adding a co-applicant with a strong credit profile can improve your chances.
Show stable income: Lenders prefer applicants with a stable income source. Submit documents like salary slips, bank statements, and tax returns to build credibility.
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