How to Bag a Home Loan on Better Terms Using Your Credit Card?
Credit Cards are one of the most controversial yet highly popular financial products of all times. Their popularity can be assessed from the mere fact that almost all tax paying individuals have at least one Credit Card. They are the stepping stone for most of us into the world of lending. They offer many benefits to the users such as ease of payment, interest-free period, reward points, and so on. Then there are cashback Credit Cards also.
Whereas Home Loans are another highly sought after financial product, which is a form of a secured loan. With the rising cost of real estate across all major cities, you must apply for a Home Loan to realise your dream of buying your own home. Home Loans are usually for a more extended period of tenure and have to be paid in EMIs.
The Relationship Between Credit Card and Home Loans
It may seem that there is no relation between Credit Cards and Home Loans, but you need to understand that having a good behaviour with your card can significantly help you get a Housing Finance on better terms. Most lenders assess your eligibility based on your credit score; if your credit score is above 750 (out of 900), then you can get outstanding deals when you Avail a Home Loan. It shows that you are a responsible borrower and have good credit habits.
Credit Cards have a significant impact on your credit score. Most people just ignore them as a miscellaneous small type of loan, but if you use your Credit Card smartly, you can build up a good credit score over time and improve your Home Loan eligibility. Following are a few techniques that will help you use your Credit Card for a better deal on a Home Loan:
- Repay Your Dues on Time: It is important that you pay your entire Credit Card dues on or before the due date. You get an interest free period with your card,and if you make the payment in full during that period, you need not pay any interest charges against the same. So, make it a point to repay your card bills in full on time, if possible set the payment of card bill on auto-debit from your savings account. When you pay your card bill in full on time, it improves your credit score significantly. Do not fall into the trap of making minimum payments as it would not reduce your credit utilisation ratio and would have a negative impact on your credit score.
- Keep Credit Utilisation Ratio Low: Remember it as a rule of thumb, your Credit Card utilisation ratio at any time should not be over 30%. If it is more than 30%, then the lender would think that your financial condition is not right and that you are not a responsible borrower. So, make sure that if you are not able to settle your Credit Card dues in full, at least pay as much amount as possible, to bring down the credit utilisation ratio. Higher credit utilisation ratio has a negative impact on your credit score and would hamper your ability to get a Home Loan at lower interest rates.
- History of Credit Card Accounts: Rather than applying for new Credit Cards and closing the old cards, you should make it a point to use your old card regularly and make a payment towards your dues regularly. This will help you have a good credit history, which is what the lenders look for eagerly. Your credit score also gives more weight to old Credit Card accounts as it reflects your discipline and responsible behaviour as a borrower. This will help you with your Home Loan application as well.
- Do Not Take Loans Against Credit Card: Many Credit Cards offer you the flexibility to take loans against them, but you should refrain from it, as the rate of interest is very high. Not only does it block limit on your Credit Card, but if you default on the repayment, it will ruin your credit score as well as your chance of getting a Home Loan on favourable terms. So, take a loan against Credit Card only if it is absolutely necessary and if you must take it then make it a point to make the repayment on time.Otherwise, consider Applying for a Personal Loan independent of your Credit Card for your urgent requirements.
- Close Your Credit Cards Properly: Sometimes it may happen that you are not happy with your Credit Card and just tear it apart to get rid of it. It is not that simple; you need to close your account correctly by paying the entire dues in full. If there are any dues remaining and you do not repay them, it would impact your credit score negatively. If you have any issues or problems with any charges against your Credit Card, discuss with your banker and resolve it amicably.
Exercising prudence while using your credit card can help your significantly while you avail a Home Loan.
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