Shift Percentages in Your Favour
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It is a dream for every Indian to own a home of his own and in order to fulfil this dream one needs to know the eligibility criteria before applying for a home loan. While home loans are offered based on various factors, the interest rate may differ based on the specifications and requirements provided by the customer. This is where the credit scores play an important role while applying for a home loan.
While not every home loan seeker looks closely into the credit scores offered by CIBIL and other agencies, it is extremely important as these scores have the capacity to help vary interest rates as much as a full percentage point.
For a customer seeking a home loan of Rs 10,00,000 with an average simple interest rate of 10% for 10 years, he would be paying an interest of Rs 5.85 lakh. Whereas, a marginal reduction of 50 basis points in the interest rate can let the customer save up to Rs 5.52 lakh.
Home loan providers or financial institutions look at several variables on the credit report, one of them being outstanding debt. The credit score offers a holistic view on the financial ability of a customer and hence forms an important element in the process of a home loan.
Listed below are some of the key pointers to help improve one’s credit score which will in turn have a positive impact on the home loans process.
Current payment management
Pay your bills on time. A delay in any credit card dues or other EMIs can have a major negative impact on your credit scores. Moreover, rebuilding it into a positive score can be a lengthy process. To help you remember when you need to make certain payments, get a system in place and try to incorporate automated payment systems such as ECS facilities. Make sure your current payment patterns are good and reflected in your credit report. One should be aware that paying off a collectable account will not remove it from your credit report and that it will stay there for few years.
Avoid multiple bank accounts
At the initial stage of your financial building exercise, avoid opening multiple bank accounts. Have a maximum of two accounts, which includes your personal and salary account for salaried and current account for business individuals. The reason for the same is that multiple bank accounts lowers one’s average account age which would eventually have a large impact on one’s credit scores. Moreover, multiple bank accounts are a risky practice for a new credit user.
Check your limits
It is important to keep a track of your credit limit. Do not use the entire credit limit at one attempt, space it out over a period of time. One can also raise the credit limit depending on the spending habits as well as the confidence to repay the spent amount.
Check on credit report
This is a good way to evaluate your credit worthiness. Your credit score repair begins with your credit report. Your credit report contains the data used to calculate your score and it may also contain errors hence regular checks should be done to help mitigate errors. Make sure that there are no incorrect payments listed in any of the two accounts. One can get the mistakes corrected by contacting the credit bureau.
Heed payment reminders
As mentioned earlier, making your credit payments on time is one of the biggest contributing factors to your credit scores. Some banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when a payment is due. This is a crucial function which enables you to consider automatic payments from one’s bank account.
Reduce the debt you owe
The first thing one must do is reduce the use of credit cards. Make sure you make a list of all accounts and check recent statements to determine how much is the outstanding balance and the interest rate levied on it. Facilitate a payment schedule/ plan that provides an available budget for debt payments towards priority payments.
Update your credit report
Your credit report is checked a year or so before buying a home. That gives you time to correct errors in the report and change the spending habits to improve your score. Make sure every personal and saving bank account detail is reported correctly and update the same in case of any discrepancies.
If you're buying a home soon, try not to apply for any new credit cards. Though it's not always avoidable, you should try and resist from opening new streams of credit in a short time. Maintaining a good credit score is not a daunting task. Following the steps enlisted can ensure a healthy and secure financial future.
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