04 NOVEMBER, 2019

Your credit score is one of the most important factors that influence your home loan eligibility. That is why understanding the factors affecting your credit score is essential, especially when you are planning to apply for a home loan. Here are five major factors that affect your credit score.

Payment History

When you are punctual about paying your bills, it reflects positively on your credit score. It is the most critical component of your credit score, which lenders consider while availing different types of loans such as home loans, etc. Following factors are considered under this component,

  • Timely payments of all bills
  • In case of late payments, how long you delayed paying bills?
  • How frequently you miss bill payment deadlines?
  • Your records of charge settlements, bankruptcies, lawsuits, etc. Lenders consider these as bad marks on your credit report.
  • Have you ever faced recovery from a bank? This is considered a red flag by lenders.


Payable Amount

The total amount you owe or the outstanding loans is the second most important thing. Here, the amount owed by you from various accounts like a credit card, personal loan, etc. is considered. Credit scoring evaluates all types of credit and how responsible you are while managing them. Furthermore, the comparison between the credit you consumed and your credit limit is also measured.

Size of your Credit History

The duration of credit usage is also taken into account while calculating your credit score. Various factors like duration of financial obligations, age of your credit accounts, etc. are considered under this component. If you are trying to improve your credit score for a home loan, you should pay all the payments on time to improve your credit history.

Having a long & good credit history is very helpful to build a good credit score. Finance experts advise keeping the credit accounts like credit cards open, even if you do not use them anymore. As time proceeds, the account ages and enhances your credit score.

Multiple loan applications

When you apply for a new loan or credit card, it gets reflected on your credit score. Lenders check your credit history, which contains the records of all your applications. Too many application requests made by you negatively affect your credit score and portrays you as a person who is in constant need for money. Lenders take this as a sign of financial instability.  

Having more number of loans and credit accounts is not considered good for a credit score, and it also decreases your chances of getting loans like a home loan from lenders. When you apply for a home loan, the lenders inquire about your total existing liabilities. This helps them to evaluate your overall capacity to repay the loan. So, lenders consider that a person that is obliged to repay other loans will find it unmanageable to pay the home loan EMIs.

Types of credit on your name

Here, different types of existing credits like instalments on other loans, store accounts, etc. are considered. This is a small component that impacts your credit score. Accordingly, if you are planning to apply for a new loan like a housing loan in the near future, you should avoid taking any other loan before that.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.