A house is always on the checklist of your life goals. And to fulfil this dream, getting a Home Loan is a wise choice. Several factors influence your Home Loan, and one of them is your credit score. Let’s see how it affects your home loan application.
Impact of Credit Scores on Home Loan
A credit score is the reflection of your financial decision-making. It reflects how well you have managed your finances, and a higher credit score indicates that you can manage your finances well enough. The score is calculated using the –
- past payments
- current and previous credit accounts
- credit history
- pan history
- and many other factors.
A credit score of 750 and above keep you in good stead in acquiring Home Loans. The higher your credit scores, the better will be your chances of getting a good Home Loan.
Good credit ensures a home loan interest calculation for your Home Loan. Plus, you will get your loan approved sooner by the lender.
Factors Influencing Your Credit Score and How to Manage Them
As you can see, your credit score is related to getting a Home Loan at a cheaper interest rate. So it is imperative that you manage and improve your credit score. This way, you can get the desired loan and build the home of your dreams.
Let us see the various factors that affect your credit score and how you can manage them:
Timely Payments
Your history of borrowings, like loans and credit card payments, influences your credit score. So being on time with your credit card payments and loan EMIs is essential. Making regular payments and never defaulting ensures a high credit score. It also brings your current finances on track, and you can avoid default charges as well. If you have ever faltered in the repayment of your loans or credit card bills, it will reflect negatively on your credit score.
Credit Utilisation Ratio
The ratio of your credit card spending to the credit limit of your credit is called the credit utilisation ratio. Keeping a credit utilisation ratio below 30% will keep you in good stead. Don’t be a spendthrift, and avoid those shopping sprees, to ensure that you remain within the ideal ratio.
If you consistently overshoot your ratio, it will downgrade your credit score. This way, you’ll be in control of your finances.
All in all, your credit utilisation ratio marks your financial discipline.
Credit Mix
Borrowings are an important part of your financial health, which decides your credit score. Secured loans are known as secured borrowings, while a credit payment or a personal loan is an example of unsecured borrowing. Having borrowings is a good thing for your credit score, provided you are paying them on time. But having a long list of unsecured borrowings is not a good indicator of your financial health. Try to maintain a balance between the two. A higher number of unsecured borrowings get you a lower credit score. Keep a tab on your borrowings, and try to avoid unsecured borrowings whenever possible.
Credit History
Lenders prefer someone who has had experience in handling credit. So a long credit history can get you a high credit score. It tells the lender that you have managed credits previously and can handle the House Loan too. Banks prefer someone experienced in handling credit to someone who has never experienced it before.
Number of Hard Inquiries
A hard inquiry is when a lender pulls up your credit score and checks your credit history. It is done when you apply for a home loan. The more the number of hard inquiries, the lower will be your credit score. So don’t apply for multiple loans at the same time, as it can negatively impact your score and lower your chances of loan approval.
