How to Build a Credit Score for Home Loans?

A Home Loan is a step closer to fulfilling the dream of living in one’s own abode. Whether you are looking for a Home Loan for the first time or to buy a larger home, your past credit history and credit score would play a significant role in determining your eligibility for the same.

A good credit score signifies financially-responsible customer behaviour to the bank or financial institution. Generally, a score of 700 or above is considered as a good score for Home Loan. Better the credit score; better would be the loan terms offered to you.

With a good credit score to back your Home Loan application, you can apply for a thicker loan amount at better rate of interest and longer duration. It is thus significant to take some early steps to build apt Home Loan Credit Score well in time.

Steps to Improve Your Credit Score before Applying for a Home Loan

1. Assess your credit history

Before you begin with your search for the best Home Loan deal, it is important to know your credit score. You must pull out your credit report and check for all red flags if any in your credit report. Late EMI payments or missed credit card bills are “red flags” on your report and adversely affect your score.

It is not possible to erase the bad credit history from your profile. The best you can do is to ensure that you build enough of good history before applying for a home loan. Generally, it will take at least three to six months to reflect good history strongly on your profile. After all, the lender would assess the repayment risk before lending to your profile.

2. Improve your Debt-to-Income Ratio

Credit is all about financial freedom to meet your lifestyle goals fast. Any salaried individual living in a metro city in India with a decent take-home salary of say Rs 50000 or more, will have a running Auto Loan, Personal Loan and a couple of credit cards. However, being a prospective home buyer, you must also know that the lender would consider your current monthly liabilities, i.e., debt-to-income ratio before approving a Home Loan.

Herein, if you could afford to pre-pay any of your previous loans, you can considerably improve your credit score. For it would decrease your monthly EMI burden, thereby improving your eligibility for the new loan.

3. Use Credit Card Responsibly

Credit cards can be one of the smartest and easiest channels to improve your credit score. As a first step, you must remember your due date for bill payments and ensure timely repayments. Gradually you would build good credit history and score. By exhibiting a decent credit bill repayment history, you become a potential customer for the lender. For, banks and financial institutions prefer to work with borrowers with a clean repayment track record.

Another cache here is: keeping your credit card spends low every month. A lot of consumers exhaust their credit limit every month and partly repay the outstanding amount according to their convenience. This is one of the bad credit behaviours. Rather than consuming your credit limit to full month-on-month, you must instead apply for another credit card and increase your credit limit. This will not affect your credit usage but reduce your credit utilisation percentage extensively and improve your credit score. Excessive credit utilisation makes you a credit hungry individual and thus affects your score.

4. Do not make too many hard Queries

A lot of borrowers begin to research Home Loan rates well before they need the actual funding. They visit bank sites or bank branches and query about their eligibility for Home Loan. Herein it is important to understand that every time you enquire a lender about a loan you actually start a hard credit query and it reflects in your credit report.

Too many hard queries can adversely affect your score. You must instead compare loans from various lenders online. You can conveniently compare Axis Bank Home Loan with PNB Home Loan, SBI Home Loan and many more by contacting a financial services distributor online.

5. Have a Right Mix of Credit Products

Your credit mix also determines your credit score. If you have too many unsecured loans and credit cards, reflecting too many monthly outgoes; it will make you a potentially risky borrower. However, if you have multiple credit cards, yet low credit utilisation ratio; an auto loan, a fixed deposit loan or a personal loan with good repayment history, it would make you a disciplined credit user. So always assess the nature of credit before you apply for one.

6. Raise a Dispute

Your credit report is an outlook of your credit management habits. Any red flag on your report poses an issue for your score. However, if your bad credit rating is a result of misreporting from your previous lender, or you do not identify any transaction, make sure you dispute the issue with the concerned authorities on a priority. Raising a dispute would correct the error and improve your score. In general, it takes 30-45 days to reflect a transaction in your credit report. You must patiently wait for the change to appear on your report.

All three major credit bureaus in India– CIBIL, Experian, and Equifax primarily use these factors to assess your credit score. However, their scoring may vary slightly. One of the major differences in their calculation lies in their overall scoring number.

• CIBIL scores range from 300 to 900 points
• Equifax scores range from 1 to 999 points
• Experian scores range from 1 and 1000 points

Following these simple thumb rules, you can maintain a good score. However, incorporating any of these changes will not reflect immediately on your credit report. You would need to adopt these habits every month to improve your score and be ready for a Home Loan.