If you are planning to buy a new home, you must understand the importance of a home loan. It can be helpful when you need more liquid resources to fund your dream home.
But what do you think is essential to get your home loan approved other than mandatory ID and occupational proofs?
What you still need here is a good credit score history. Seldom do we realise that a credit score history is equally important to get a home loan approval. We will be telling you why in this blog.
- 1 How Does a Credit Score History Help in Home Loan?
What is a Credit Score History?
A credit score history is the track record of loans and repayment. This includes the amount of credit you have availed and if you have repaid it on time. It evaluates how you have used your loans and credit in the past.
If you have availed loans and paid them back on time, you would have an impressive credit score history. On the contrary, if you have defaulted on those loans, you will have a poor credit score history.
How Does a Credit Score History Help in Home Loan?
Let us take the help of an illustration to help you understand this better.
You have a neighbour who is going through a severe financial crunch. He comes to you for help and asks if you could lend him some money. Now, you don’t mind lending him the money, but you would want to know if he has repaid the loans he availed in the past to ensure you get paid back.
So, as the example suggests, a credit score history helps evaluate the likelihood of a borrower to return the money to the lender. A financial institution or corporation would like to see if you have followed good credit behaviour in the past. If you do, you will get your home loan approved.
But the benefits of a high credit score don’t just end there.
A good credit score would certainly get your home loan approved. However, an excellent credit score would help you strike a better deal with the financial service provider. They can offer you lower interest rates, knowing that you are a responsible borrower.
High Loan Amount
Lenders usually get sceptical about granting a home loan if they think you are an irresponsible borrower. So, when it’s a significant amount, you can imagine their reluctance.
However, if you have an excellent credit score, they would be okay with offering you a high home loan amount. In fact, they might be very confident that you will pay it back responsibly.
What Should You Do to Maintain a High Credit Score?
Here’s a checklist you must follow to have a high credit score and ensure your home loan is approved in no time:
Pay Bills on Time
Your household or credit card bills matter as much as the loans you have availed in the past. You must pay all your bills on time to have a high credit score.
Refrain from Applying for Multiple Loans at One Time
Understandably, you would have bills to pay, for which you may have to take several loans simultaneously. However, doing so may be challenging, given that multiple loans can affect your home loan approval as well.
Multiple loans may negatively impact your credit score. The more hard inquiries are made in your name, your credit score may diminish by a few points.
Moreover, taking on more credit increases the credit utilisation ratio, which is 30% of your score. If you keep adding more liabilities to your account, it can reduce your credit score until they are paid down.
How Much Credit Score do I Need to Increase the Chances of my Home Loan Approval?
Keep your credit score of 750 or more to increase your chances of home loan approval. If you wish to strike a better deal, aim for 760 or more.
Now, we know that we must maintain a high credit score to make home loan approvals easier. Better interest rates and higher loan amounts are some of the additional perks you can get if you have an excellent credit score.
We sincerely hope that you will now follow a much more financially disciplined approach if you are planning to file for a home loan in the present or the future. Pay your loans and bills on time, and you will be just fine.
Dream Home Within Reach with Tata Capital
A robust credit score history plays a pivotal role in facilitating the approval process for home loans. Lenders, such as Tata Capital, rely on credit scores to assess an individual’s financial credibility and risk profile.
A favourable credit score not only increases the likelihood of loan approval but also contributes to securing more favourable terms and interest rates.
Trust Tata Capital, as they will guide you through the financial aspects of your home loan journey, ensuring a seamless and rewarding experience. Your dream home awaits, and a strong credit score is your key to unlocking its doors.