To get your housing loan application approved, you must fulfil the eligibility requirements of the lender. One of the most important things that the lenders consider is your credit score. Read this post for some smart tips to improve your credit score.
With the rising cases of loan defaults, lenders in India now lay a major emphasis on the credit history of the applicants. As housing loans involve a significant sum of money, lenders want to make sure that they only lend money to people who have the capacity to repay the loan in full within the tenure.
Lenders analyse your credit history through your credit score. It is a 3-digit number which credit bureaus like CIBIL calculate based on how you have treated credit in the past. Most housing loan lenders generally prefer applicants with a credit score of 650-700 and above.
If you are planning to apply for a home loan but do not meet the credit score requirements of the lenders, here are a few tips that can help you improve the score:
- Be Responsible with Current Credit
You might have been not able to repay your loan EMIs or credit card bills on time before, and this might have significantly impacted your credit score. But if you are currently repaying a loan or using credit cards, start being more disciplined with the monthly payments. The more disciplined you are with loan EMI and credit card bill payments, the better will be your credit score.
- Reduce Credit Utilisation
If you always end up using the entire limit of your credit card, this too can affect your credit score negatively. Credit utilisation plays a vital role in credit score calculation, and if you are relying too much on credit every month, it can severely impact your chances of getting a housing loan.Make sure that you only use credit only if it is unavoidable. Inculcate better financial habits and try to reduce your expenses so that you are not required to rely on credit cards for managing your monthly expenses.
- Use the Old Credit Card Account to Your Advantage
If you are using a particular credit card for a long time now and have been paying its bills in full every month, continue using the same card rather than switching to a new one. Since you have been using a single card for a long time and been paying the bills on time, it will help you build a good credit history. The credit bureaus and lenders see this as a positive trait, and it can help you improve your credit score.
- Avoid Multiple Credit Applications within a Short Duration
Every time you apply for a loan or a new credit card, an entry is made in your credit report irrespective of whether your application was approved or rejected. Multiple applications within a short period is generally seen as credit hungry behaviour and can be very bad for your credit score.
So, if a loan or credit card provider has rejected your application, try to first understand the reason for rejection before reaching out to another provider. This can prevent your credit score from falling further.
- Check Your Credit Report for Errors
It is common to have errors in your credit report. For instance, it is possible that you have repaid a loan in full, but your lender has failed to inform the same to the credit bureau. Moreover, there can also be suspicious activities or frauds on your credit report like loans or credit cards on your name that you have never taken.
Borrowers looking for home loans should always check their credit report before applying for the loan. In case of any errors or frauds, you can reach out to the credit bureau to get them resolved.
Understand the Credit Score Requirements of the Lender
Rather than applying for the housing loan and getting your application rejected due to poor credit score, it is better to first thoroughly understand the credit score requirements of the lender. Most top lenders generally provide detailed information about the eligibility requirements on their website.
It is better to only apply for the loan when you meet the requirements so that your loan application is approved and you can fulfil your dream of purchasing a home.
