The home loan lenders in India consider several factors before approving the application. And one of the critical factors is the CIBIL score or the credit score of the applicant. Read on to know how you can improve your score before applying for a home loan and increase your approval chances.
After much discussion, if you have decided to purchase a new home, the next step is to do your research online and find the best home loan offers. When you compare the offers from different lenders, apart from looking at the interest rate, you must also look at the lenders’ eligibility requirements and particularly the minimum CIBIL score required.
CIBIL is the acronym for Credit Information Indian Limited. It is one of India’s oldest organisations that keeps a record of the credit cards and loans avail by the Indian residents from financial organisations, including banks and NBFCs (Non-banking Financial Companies). The CIBIL score or the credit score is a three-digit number, which ranges from 300 – 900. It is created based on your credit history, which includes the credit you have availed in the past and your repayment pattern.
While a high credit score reflects your good repayment history and trustworthiness, a low score will reflect a poor credit history. This means the lender will consider you a high-risk borrower and charge a higher interest rate on the loan. In some cases, the lender may reject your home loan application.
Even if you have a bad or below par credit score, there are ways to improve the credit score and avoid getting your loan application rejected. The following tips can immensely help you:
Review your credit report periodically
First and foremost, make sure to get your credit report every month and thoroughly review the same. This will help you get a clear idea about the delayed payment and any defaults. Also, you must evaluate if there are any wrong entries in the report. For example, you may have paid a part of your debt, but still, the report shows it as unpaid or default. Such mistaken entries in the credit report can have a significant impact on the credit score. So, if you notice any such mistake, you must immediately report the issue to the credit bureau and get the report rectified.
Repay your outstanding loans
One of the easiest and effective ways to maintain a good credit score is to repay the loan EMIs on time. Delaying a single EMI by even one day can have a major impact on the credit score. If you are falling behind on the EMI payments, it would be advisable to cut down your monthly expenses and try to repay the amount. You can try negotiating with the lender to restructure so that the EMIs become more affordable for you.
You can consider using the loan EMI calculator to know the maximum amount you can afford to repay every month after taking care of your regular expenses and revise your EMI accordingly.
Avoid applying for multiple unsecured loans
Applying for multiple unsecured loans like personal loans or credit card loans will reflect that you are credit hungry, and it will make you an unattractive borrower for the lenders. So, it is advisable that you avail of such loans only if it is unavoidable. However, taking secured loans like a car loan and repaying it on time can add to your credibility. If you repay the loan within the specified tenure or before the actual term, it will improve your credit score.
Keep track of co-applicants’ payments
If you have applied for a joint loan, it is paramount that you keep a close track of the co-applicants’ payments. Remember, even if the co-applicant defaults on their payments, it would hurt your credit score. So, ensure that your co-applicant clears their dues on time.
Most lenders in India have a benchmark score of 700 for home loan applicants. But, if your score is lower, you don’t have to be disheartened. Just manage your payments promptly and give yourself some time to allow your credit score to increase.