Are you planning to take out a home loan for giving wings to your dream house? Have you shortlisted the bank or financial institute for borrowing the money? If not, it is essential for you to understand the importance of credit scores in the home loan process.
Since home loans are secured personal loans, lenders require some kind of assurity in the form of collateral against the loan. This collateral can include any valuable asset like property documents, precious jewels, etc. In addition, the borrower’s credit score is also a crucial deciding factor for lenders while approving or rejecting a loan application.
How is a credit score significant in a home loan process?
A credit score or CIBIL score is a three-digit number which ranges between 300 and 900. It is calculated depending on the individual’s credit history or previous loan repayment patterns. Considering your credit score, banks decide whether it is risk-free to grant you desired loan amount.
What is considered to be a decent credit score?
The best credit score for a home loan is believed to range between 750 and 900. While every bank has its own set of rules when it comes to having a deadline for a credit score, keeping it above 750 can be beneficial for home loan approval. If you have a low credit score currently and wish to get your home loan approved, keep reading through to learn how.
How to get your home loan approved while having a low credit score?
Even if your credit score is low, you can still acquire a home loan. Even if you have no credit history (your score will be NH/NA if you have never had any prior loans or credit cards).
Before applying for a personal loan, you should endeavour to raise your credit score. If this isn’t possible, consider one of the following options:
- Search for a different lender: Look for a different lender who could be willing to provide you with a house loan at a higher interest rate.
- Offer collateral: Some lenders may offer you a loan in exchange for gold, stocks, assets, fixed deposits, or other valuables.
- Demonstrate a consistent income and bank account: Having a steady salary and a healthy bank account can reassure lenders that you will be able to make monthly loan payments.
- Choose a lower loan amount: You might ask for a lower home loan amount and a bigger down payment to reduce the lender’s risk.
However, keep in mind that loan approvals are typically based on a variety of variables, and these approaches may not guarantee approval if your credit score is poor.
How to improve your home loan eligibility?
If you think that there are chances of your home loan getting rejected, it can be helpful to improve your credit score beforehand. Do not think that switching from one lender to another will increase your chances of home loan approval; it will reduce your score further. Check out the below-mentioned ways to improve your credit score:
- Keep track of your credit score to make sure it’s adequate.
- Check your credit report on a regular basis to catch any problems and correct them.
- If you have any unpaid bills or payments like credit card bills and EMIs that are past due, pay them as quickly as possible.
- Make sure you don’t end up as a loan guarantor. If the borrower fails to make payments, it will have an impact on your credit score, and you may be forced to pay the debt on their behalf.
- Do not apply for a large number of new credit cards, loans, or other types of credit in a short period of time. This includes applying for credit cards, loans, and other financial products.
Use the best mortgage calculator to calculate upcoming monthly payments and make wise financial decisions!