Introduction
Think of your credit score as your “Financial Superhero”, your superhero helping you surpass all those hurdles to reach the top you never thought you could. Although, not entirely! Credit score holds a tremendous amount of power over you. Your credit score could make or break your desire to get your dream home approved.
In this article, we are going to delve into the benefits of a good credit score and uncover the repercussions a credit score could have if the cards weren’t played right.
Here is a short summary of what a Credit Score is:
Your credit score required for a home loan must be 750 or higher; the lower the credit score, the lower the chances of your loan being approved. The credit bureaus maintain the credit history. They check in on your past loans and how you’ve handled your credit cards. With a good score, you can get simple processing and low interest. These scores determine your creditworthiness.
Let us understand how Credit Scores can Impact the Home Loan.
While you apply for a home loan, s a risk is taken by the lender in providing you with the loan. It is mostly risky to them if your credit score is below 750. It gives the impression that you might be irresponsible with your finances, making the lenders hesitant to trust you with their money. Therefore, by having a better score, you can easily negotiate a better home loan deal and also receive a lower interest rate than usual.
Shall we delve into How the CIBIL Score Affects Home Loan Approvals?
The CIBIL Bureau focuses on certain factors that are used in calculating the history; these factors are mentioned below.
1. Denying the Housing Loan Application:
Loan application rejection is not very uncommon. There are many factors that – paired up with a low credit score – can affect the approval process. What are they? Well, with a low score, low income, unpaid or delayed debts, the bank will not think twice before rejecting your application. But it could be rejected even if your salary is stable or your debts are paid on time because a low credit score for a home loan causes a ruckus as you become a high-risk borrower applicant.
Therefore, before applying for a loan, check your score and get everything aligned, everything that will impact the loan process. When you're in the process of house hunting and considering applying for a home loan, it's an opportune time to not only check your credit score but also take steps to improve it, if necessary.
2. Accepting Home Loan at a Higher Interest Rate:
In the quest for homeownership, receiving a home loan is something of a turning point in one’s life. However, it’s important to point out that the approval process for every applicant is different. The catch is- the “High-Interest Rate”. If the credit score required for a home loan is between 650 and 750, you will still get an approval but with a high-interest rate, unlike the ones offered to people with a score of 750 and above.
3. Home Loan Approvals at Disadvantageous Conditions:
The interest and the tenure of a loan plays a decisive role in paying the EMI. A tenure can go up to 30 years, subject to the age of the applicant. However, having a low credit score for a home loan will turn into a disadvantage for you as the lender will detect it as a risk to lend a longer tenure, or you will be asked to pay a higher down payment. Either way, it is a financial burden for you.
What Can Be Done to Improve Credit Score?
- Avoid excessively applying for loans at different banks, repeated applications have a negative impact on your credit report.
- It’s very important not to fall into the default list; to pay all your debts on time while also clearing all your loans before applying for a new loan.
- Manage equal amounts of secured as well as unsecured loans.
- Remember not to exceed your credit limit.
- Track your financial transactions daily.
- Make sure to check your credit history and try to improve it, if it is lacking any factors that may help in improvement.
Conclusion:
So now you know how important it is to maintain a good CIBIL Score. Not only for home loans, this is also applicable for any kind of loan. Your financial superhero will help you understand the nexus between your financial standing and your homeownership aspirations.
We’ve learnt how the credit score can be either a smooth path or a challenging uphill climb. The credit score is not just a number but also acts as the guiding star in every borrower's financial report.