How Your Credit Score Can Impact Your Home Loan?

The role of credit score and how it impacts the eligibility of a borrower to avail loan is often underestimated. Compared to your employment and income status, credit score has a big say on whether the loan application can be approved or rejected.

And, when it comes to home loan eligibility, lenders prefer checking your credit score and the detailed credit report before moving further on the approval process of the home loan application. Let’s understand it in detail.

The Credit Score Impact on Home Loan

Despite being a secured loan, a home loan is a big-ticket loan for any individual and the repayment tenure is spread over 20-30 years. Therefore, the lender before processing the home loan application looks for the creditworthiness of the borrower by assessing the credit score. Whether the borrower has a good track record of repaying loans, credit card bills and similar transactions.

For lenders, it’s the preliminary check to gauge the creditworthiness of borrowers and assess whether the borrower poses any credit risk for the institution or can meet the loan obligation. It’s a process to minimise risks while lending.

Good Credit Score Impact on Home Loan

Along with stable income and employment status, at Grihashakti, we require a minimum credit score of 700 to process home loan applications.

Having a good credit score can help you to negotiate a better deal on home loan interest rate and repayment terms with the lender.

A slight reduction in the home loan interest rate can result in big savings on interest costs over the loan tenure and can also help you repay the loan early.

You can use the home loan eligibility calculator, to check the maximum home loan you may be able to get based on your income, repayment capacity, and the nature and value of your property etc. Using the calculator, you can plan your home loan amount, repayment amount and tenure accordingly.

Tips to Improve Credit Score

If you have a credit score below 700 or the minimum credit score prescribed by the lender for taking a home loan, you can use the following ways to improve your credit score.

• Repay the existing credit card due and other short-term loans like personal loans before applying for a home loan
• Reduce your debt-to-income ratio, meaning the monthly outgo towards loan repayments. Having a lower debt-to-income ratio, preferably below 30% helps to improve eligibility for a home loan
• Don’t make repeated loan applications, as it will generate multiple hard inquiries on your credit report within a short span, which demonstrates credit hungry behaviour, and could cause rejection of your application.
• Check your credit report, and if there are any errors or are missing details relating to your debt repayment, raise the issue to rectify the error.

Tips to Improve Home Loan Eligibility

If you’re falling short of the eligibility requirement prescribed by the lender for securing a home loan, the following tips will enhance your home loan eligibility.

• Apply with a co-applicant: A home loan with a co-borrower improves the chances of loan approval as the co-borrower is equally responsible for the timely repayment of the loan. Ensure the co-applicant has a good credit score and high disposable income for improved eligibility.
• Select extended home loan tenure: for extended loan tenure helps to reduce the home loan EMI amount, thus reducing the burden on your income for servicing the loan and improve eligibility
• Include all sources of income: When applying for a home loan, include all the sources of your income like salary, rental earnings, income from investments to improve on the home loan amount. Also, include the variable pay like incentives, bonuses, etc.

There are many ways to improve home loan eligibility and get a better deal on a home loan, but having a good credit score is the most effective way to improve your home loan eligibility.

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