Are you a first-time homebuyer who wants to know how important a credit score is? Do you realize how valuable it is in terms of simplifying your home loan process? Credit ratings are important in the home-buying process because they can save borrowers a lot of money in the long term. A low credit score can affect your mortgage terms, such as interest rates and payback terms, among other things. Continue reading to find out what credit score is required for first-time home buyers and how to raise it.
What is a credit score?
A credit score is a three-digit number that represents your credit history and repayment trends. Let’s say you’ve taken out a loan in the past and haven’t paid your EMIs on time. This practise lowers your credit score and makes it more difficult to obtain a loan in the future. A credit score of 750 or above, on the other hand, indicates that you are a responsible buyer who is likely to be granted a loan at a reasonable interest rate.
How to improve your credit score to apply for a home loan?
If your credit score is low, there’s a good possibility you won’t get approved for the loan amount you want. At that point, it will make sense to take a breather and concentrate on boosting your credit score. You may also use a home loan qualify calculator to see if the EMIs for the loan amount you want are manageable. Here are some suggestions for improving your credit score in order to qualify for a home loan:
Pay your bills on time
On-time bill payments have a big impact on whether your credit score rises or falls. Any missed payments will appear on your credit report, according to reports.
Maintain a lower credit card balance
Financial experts recommend that you never spend more than 30% of your credit card limit on any credit card. This allows customers to keep track of their spending and only purchase what their budget permits. This is referred to as credit utilization, and it is the second most important element that influences your credit score.
Keep an eye on your credit reports
It’s critical to check your credit reports on a frequent basis for inaccuracies that could harm your score. If you discover a disagreement, you can report it right away and request a free credit report from the credit bureaus.
Examine your repaying capacity
A borrower must demonstrate their eligibility when applying for a home loan in order for the loan amount to be accepted. To determine if you have the financial means to repay the loan, lenders look at your sources of income and consistent cash flow. Lenders require you to meet the minimum income criterion to ensure that you can manage your monthly expenses while repaying the loan. There’s a good possibility you’ll be approved for a loan if you don’t have many sources of income but have a good credit score.
Why is a credit score needed to apply for a home loan?
To give the requested loan amount, lenders expect a perfect credit record. As previously said, a high credit score indicates that you are a responsible lender who is less likely to default on the loan amount. When you have a good credit score, lenders are more likely to provide you with more options and lower interest rates. Most homebuyers consider a credit score of 620 or higher to be adequate.
You might also demonstrate your creditworthiness by making a significant down payment. Using a mortgage calculator with down payment also suggests that you have a history of saving and have a steady cash flow in your bank account, indicating that you will not default on the loan.
Maintain a good credit score to qualify for low-interest home loans!