13 APRIL, 2022

A CIBIL score is like the report of your financial health. A good CIBIL score helps you get approved for loans and credits easily. Your credit score report is a significant factor that influences your application’s approval. You can also leverage your high credit score to gain better conditions on your home loans like higher loan amount, low interest rate and maximum loan tenure.

However, the reverse is also possible. A poor credit score can make lenders reject your loan application.

 

Read to know more about credit score and how it affects home loan approval.

 

What is a credit score?

A credit score is a three-digit numerical score that reflects your creditworthiness. Credit rating agencies like CRISIL provide credit scores by analysing an individual’s financial history, and credibility. The credit score is measured between 300-900, where 900 is the highest. For a home loan, lenders prefer an applicant with a credit score of 750 and above.

Your credit score is indicative of your credibility, creditworthiness and repayment capability. If you have a good credit score, it is less risky for the lender. An applicant with a high credit score can get lower interest rates, higher loan amounts and preferential services from the lender.

 

Your credit score is determined by the study of the following factors:

  • Your payment history - Whether you have paid your bills and EMI on time or not
  • Credit utilisation ratio - The amount of credit used, compared to available credit
  • Age of credit - How long have you been using credit cards.
  • The number of credit cards - How you handle unsecured and secured credit

 

How does it affect your home loan application?

Your credit score is probably the first factor that the lender considers while processing your loan application. With your credit score, the lender can judge your repayment capacity and decide if they should lend you the loan. If your credit score is poor, you could be considered a risky borrower. In such a situation, they can deny you a home loan.

If you have a low credit score and still want to avail a home loan, you can pay a higher down payment. Moreover, having a co-applicant also enhances the chances of home loan approval.

 

Tips to improve credit score

  • Maintain a healthy mix of secured and unsecured credit.
  • Do not spend more than 30% of your credit card limit and maintain a credit utilisation ratio of up to 30-40%.
  • Pay all your credit card bills and EMIs timely without fail.
  • Do not apply for loans with multiple lenders at the same time.
  • Check your credit report periodically. If you find any discrepancies, request the lender to rectify them.

 

Your credit score can be a significant factor in your home loan eligibility. Therefore, you must check your score before applying. Once you get the credit score report, you must ensure it has no discrepancy. It would be best to improve your credit score to get the best interest rates on home loans.

 

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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.