Ravi Munshi, a 35-year-old professor, turned down a home loan despite earning well over Rs 1 lakh monthly for the past 3 years. What is the reason here?
The reason is that he has a bad credit history and an extremely low credit score.
With this, it must be clear that credit score plays a crucial role in your life. A credit score is a factor that acts as a non-negotiable qualifier if you are looking for quality deals in the market from major banks. Now, take the instance of Sabrina Ruikar, a senior associate with a top MNC who never availed a ICICI Home Loan or credit card. Does this sound like a financial goal for today’s generation?
On the other hand, if you are in the market for a home loan but have a bad credit history, a creditable finance broker can help you reach your target. They will be able to aid in uniting a lender that will meet your requirements.
Things were good for Sabrina until she made the decision of purchasing a car. When she reached the bank for a loan, they turned down her request for a loan, stating her inadequate credit history to be the major cause.
Likewise, if you are searching for a good home loan offer too, there are 2 major things you must note about your credit score:
∙ Strong credit score enhances your chances of home loan approval: Having a strong credit score is a plus when it is about securing a top home loan offer. This provides the lenders with security about your repayment potential, and hence your home loan application gets an instant approval mark.
∙ good credit score gives you control: With a phenomenal credit score, you often are in a better position to negotiate a home loan. For example, your lender may agree to lend you at a lower interest rate in consideration of the fact that you have a good credit history. Not just this, with excellent scores, you can get the administrative charges, processing charges, and various other miscellaneous fees waived off.
Note that maintaining a strong credit score is not difficult. In fact, more than credit score itself, it is the rookie mistake and minor lapses in the judgement that land many in deep trouble.
What is a strong credit score?
Credit scores usually are categorized on a scale of 300 to 900. Someone who never borrowed will not have any credit score. If this sounds just like you, then you must work on this part before you begin to think of a home loan. Begin with the basic credit card and then check whether you can do small ticket buys on credit and repay them on time. Ensure to explore tools such as short-term personal loans. This will make you understand how the process of repayment functions before you go ahead with something as complex and nuanced as a home loan.
A credit score equaling 750 and more
Aim for a score of 750 and above. This score will show the testimony of your good credentials when approaching the bank for any loan, may it be a home loan or personal loan. Moreover, it will provide you with the benefit to negotiate your loan interest rates and terms and conditions concerning repayments.
A credit score in between the range of 500 – 600
Any score that is less than 600 is likely to restrict your choice to just a handful of financial instruments. What is worse – you might require settling for a lesser loan or repaying a higher interest rate. In these cases, it is best to take up a series of instant measures and get the credit score on the right track.
Right way forward
As home loans, may it be an ICICI home loan or LIC Home Loan, including several commitments, documentation or otherwise, ensure to take some of your time to straighten your score first? In case you are unsure of where to begin, here is what you must know for the starters:
Review your repayment history
In a maximum of the situations involving low credit score, note that the underlying cause is very simple – there is payment, which must be made. Review your usage of credit cards to see if there is an unpaid bill that is guzzling your credit history.
Constant loan applications
In case you have been turned down a home loan offer, do not go about placing a fresh loan application with the same loan creditor right away. This is because each time the lender fetches your credit report, there is a negative impact on your credit score. In these cases, wait for a few months, say six months, before you hit on the home loan application button with the same lender or other lenders again.
Mistakes on a credit report
There are times you might stumble upon a potential oddball event where your score appears lower than what it must be. Mistakes or errors on your credit report are normal, and there are many who fall victim to this. Thus, it is important for you to keep reviewing your credit report periodically and report any mistake or error you notice to the concerned authorities.
Remember that maintaining an excellent credit score is nothing but a matter of deep patience, little effort, and lots of discipline.
An excellent credit score can considerably ameliorate your chances of attaining a huge loan amount on your home loan application. A credit score is an important value ascertained after reviewing your credit files and utilized to decide whether you are credible or not. Lenders may instantly reject your home loan application if the credit score fails to meet the prescribed limit. Thus, it is important that you improve your credit score before you apply for a loan.
While distinct housing finance companies and banks set varied limits regarding how high or low the credit scores must be before determining on rolling out with a home loan, the basic consensus states if your credit score is over 750, you are in a good position to be an eligible candidate for the home loan. However, your chances of being denied the home loan offer may be high if your credit score falls below 750.