Securing a loan is always dependent on an important factor generally termed CIBIL score. CIBIL stands for Credit Information Bureau (India) Limited and is the first Credit Information Company (CIC) in India that keeps up-to-date records of an individual’s payments and credits in terms of loans and credit cards. However, there is no specific ‘good’ or ‘bad’ score but higher the score represents higher creditability and vice-versa.
Good credit score for home loan has now been made mandatory by the government. A credit score between 750 to 900 represents excellent creditability with unblemished record of past repayments while a score less than 550 diminishes the chances of obtaining the loan and if obtained will attract higher rate of interests.
How to improve credit score for home loan? Only a bit of paying attention can have a significant positive impact on your credit ratings. Hence, following are the tips which will help you to makeover your existing credit score and needs to be followed before approaching any institution for applying loan:
Get Through with your Credit Report
Considered as one of the key factor for obtaining a loan, you need to check revolving credit you have against how much you are having. The lower the percentage, chances are high to obtain the require loan. Secondly, it will highlight the various instances of default and delayed payments at your end that can negatively affect your loan application. Thirdly, it will let you know the information recorded in the credit report thus fixing the credit score. As if there is some negative information, you can approach the Bank and CIBIL to get the situation in your favour.
Avoid Applying for Credit, if Rejected
After getting rejected for a loan or a credit card from one bank, don’t try to apply for the same to the another bank. As the score in one bank is already recorded in your credit history, the other bank will also reject your application considering your current low credit score as well as the rejection by previous bank. This scenario will further pull down your credit score and will affect it adversely.
Avoid Multiple Applications for Loan in a Short Span of Time
Every time when you apply for a loan the bank will ask CIBIL for your credit report and this inquiry pulls down your credit score. So this not only suggests your ‘credit’ hungry behaviour, but also affects your credit score adversely by questioning your capabilities of paying back the loan on time.
Pay off your Liabilities on Time
You need to be prompt in paying back your liabilities based on loans and credit cards. Not just the minimum amount due on your cards, try to pay at least sizable amount and if possible pay off the entire amount in due time. In case you are struggling to pay your current EMI, you can get back to bank to restructure your debt so that you can pay your outstanding easily.
Avoid Joint Applicants
In case you are a joint applicant for a loan procured by someone else then you may suffer even if you are not at fault. In case of default of payments by them, your credit score will also get affected adversely. So in case, you are planning to apply for a loan, try to avoid being a co-applicant for the loans procured by others or if obtained, ensure that the repayments are done within stipulated time without any default.
Try to Keep the Credit to the Minimum
Make sure to apply for loan only in the case of necessity as procuring too many loans brings down the credit score. Ensure to not to get close to the credit card limits as such activities again displays a credit hungry behaviour thus chances of obtaining further loans get diminished.
Avoid Loans and Credit Card Settlements
Settling a credit card or a loan means paying amount less than that actual amount due against the respective loan and credit card. Banks often accept such requests but these activities get noted down in your credit report and bring down your credit score. Thus prior to obtain any loan, ensure to not to settle down your previous loans or credit cards balances.
However, after taking above precautions if still your credit score is low, then you have something more to help in this direction as follows:
Graph of your Repayments
Wondering how repayments can pull down your credit score for home loan? Paying off your loan unsteadily i.e. a hefty amount in one go which is due since long ago may adversely affect your credit score. However if you make your repayments steady in time, it will help you to boost up your credit score.
Utilization of your Credit
Credit Utilization Ratio is a comparison of the amount of credit you have used to the amount credit you have as balance which amounts to 30% of your actual score.
These are the ways how you can improve your credit score for home these can actually help you to escape the complications associated with obtainin home loans easily.