When you find that house of your dreams, the first thing that springs to mind is to apply for home loan since it’s your ticket to funding the big purchase. But sometimes, loan applications get rejected for various reasons, among which the most common is a low CIBIL or credit score. It is major factor that determines your loan approval, loan amount and even rate of interest.
Why is high and low credit score important?
While a high credit score is viewed as a low probability of a default, a low credit score reflects the opposite, making financial institutions wary of the person applying for a home loan.
Credit score is a three digit number that ranges between 300 and 900. It reflects your creditworthiness as it is a summary of your payment history, outstanding balances, number of loans, total credit limit, credit utilization, every loan detail taken from different lenders. Higher credit scores are great for you if you are applying for a home loan. On an average, a credit score of 750 is great for borrowers as lenders find themselves at less risk. Moreover, at this score, you can get good deals on your home loan and better rates of interest.
Your credit score is impacted positively by:
● Consistent payment of loan EMIs
● Credit card bill payments on time
● No over-leveraging
● Payment of credit card bills in full as opposed to minimum due amount each time
● Good financial records
● Many types of credits, especially unsecured personal loans in family
● Good utilization of credit limit on cards
Your credit score is impacted negatively by:
● A lot of credit report enquiries by banks and financial institutions
● Dishonoured or bounced cheques
● Loan repayment irregularity
● Defaults on credit repayments and even defaulting as a guarantor
● Late payments on credit cards or making part payments consistently
● Number of unsecured credit (multiple personal loans)
● Numerous applications for unsecured loan, especially when rejected
● Going beyond the approved credit limit and even high utilization of it
Other than these, your credit score can also be impacted negatively when banks or financial institutions you are dealing with make errors in their records. Hence, it’s important that you keep checking whether or not your banks are submitting the right information. It comes really handy if you request and maintain a copy of your credit history personally as compared to a financial institution doing that for you.