Once you achieve the financial strength you had envisioned all your life, the next big step is buying a house you can call your own. Hence, investing in a house is a big decision and a major milestone in anybody’s life. A home loan can serve as the financial means to have your own house. It can be helpful when you lack liquid assets or when you prefer to preserve your savings for future needs.
So, availing of a home loan can be suitable for you if you prefer to pay its cost over the years instead of lump sum.
But what do you need to do to ensure that you become eligible for a home loan?
There are many things. But among them, the most important is a credit score that keeps on building with your credit history. Keep reading the blog to find out why credit score is so important.
Why does a robust credit score matter?
Before we tell you why, let us tell you what a credit score is in the first place.
Just as your bank statement is the record of your transaction, a credit score can be considered as the record of the loans you have taken in the past. It is a numerical representation of your credit behavior. It indicates if you have been financially disciplined when it comes to repaying the loans you have taken in the past.
A credit score serves as the driving decision in the home loan approval process. Lenders consider your credit score before granting you a home loan. After all, like anybody else, they would want to get their money back with interest. A credit score can establish if you are going to repay your home loan based on your credit behavior.
A high credit score would indicate that you’ve been financially responsible when it came to repaying your loans. Likewise, a low credit score would mean that you are not financially disciplined.
What are the other benefits of having a high credit score?
A high credit score will make you the best candidate to get a home loan. But the added advantage is that it may offer you other benefits. Some of them are mentioned below:
1. Interest rates.
A high credit score may get you a lower interest rate on your home loan due to low credit risk.
Consider it as a reward for being financially disciplined in the past. As a person with a high credit score seems less risky to the lender, they may offer a lower interest rate on the home loan.
2. Home loan amount and term.
You’re more likely to get a higher home loan amount approved if you have a high credit score. As a bonus, you may also get more flexible terms if you have a strong credit history.
3. Faster home loan processing.
A high credit score may help if you are in urgent need of funds.
Since lenders often prioritize applications with high credit scores, you’re most likely to have your home loan processed faster than others. It will ensure a smoother and faster house-buying procedure.
What all factors influence credit scores?
Everybody wants a high credit score, but how would you get one? Well, first things first, you must understand the factors that influence your credit score.
1. Payment history.
Did you know that bill payments also affect your credit score?
As mentioned previously, a credit score is an account of your payment history. This includes your household bills. These bills are a financial obligation which you must attend to. Hence, they are a driving factor in the calculation of your credit score and your home loan approval process.
2. Credit utilization.
Credit utilization is denoted by a percentage. It is the amount of credit limit you use. For instance, you have a credit card with a monthly limit of INR 50,000. If you have used 25,000 of that limits, then your credit utilization ratio would be 50%. Try to use at most 30% of your credit limit.
3. Types of credit accounts.
Also known as credit mix, it is the types of credit you have availed previously. It may include a credit card and certain secure and unsecured loans.
Recent credit inquiries.
Credit inquiries also affect your credit score. Every loan application that causes a hard inquiry may diminish your credit score. So, you must refrain from filing for multiple loans in a short period.
Getting a home loan can be complicated. But it can become more accessible and quicker if you have a good credit reputation. Hence, if you are planning to get a home loan to buy a house for your family in the future, you must not undermine the importance of credit score. While you are at it, don’t forget to choose a lender wisely. Always go for reputed lenders such as Tata Capital, which are dominating the home loan market because of their broad customer base and reliable customer service.
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