The Impact of Credit Score on Your Home Loan

What Is A Home Loan?

A home loan is an amount of money that someone can borrow from a bank or a private lender at a certain rate of interest that has to be paid along with the EMI every month. The particular property is going to be held by the moneylender for security purposes. If the borrower cannot pay the loan dues, the lender has the legal right to seize the property in question and sell it to recover the dues.

The Different Types of Home Loans Are:

1. Home purchase loan
2. Home improvement loan
3. Home construction loan
4. Land purchase loan
5. Home extension loan
6. Joint home loans
7. Home Loan balance transfer
8. Top-up Home loan

What Is Credit Score?

A credit score is a number that ranges between 300- 900 and is calculate by rating agencies like see CIBIL and Experian. If you ever take a loan or a credit card from a bank or any financial organization, your lender tracks your repayment records and sends them over to credit agencies every month. The credit agencies compile your information to draw up a folder of your credit history and determine your credit score, discipline, payments, and disciplined repayments, which helps to increase your credit score, and late or incomplete payments bring down your credit score. When you apply for a home loan, the lender will take into account your credit score to evaluate if you are worthy of the loan. If your credit score is above 750, you’re likely to get various options of home loans.

Impact of Credit Score On Home Loan:

• Before lending you the money, the bank evaluates the risk you pose to them. They check your credit history to understand this. Your credit reports contain the financial details about your previous credit card and loans repayments. Previously, if you have repaid your debts on time, your lender will find you as a responsible borrower. In the negotiations, they could offer you lower interest rates, but if they find out that you have made delays with loan repayment or have a patchy repayment history the bank will probably charge a higher interest rate with the EMI to cover up any future risks.
• To have a smooth home loan acquiring process, you need to have a CIBIL score above 750. The credit reports are the first things that the lender checks, and it influences whether the lender will give you the loan. If your credit score is low, the application may get rejected. Your creditworthiness is being determined by your CIBIL score which usually ranges from 300 to 900. A good credit score will ensure better terms and conditions for your loan. Your CIBIL score is a direct result of your payment history, and late repayments on EMI negatively impact your credit score.
• Having a high number of unsecured loans in comparison to secured loans such as home loans or auto loans can also impact your credit score negatively. If you have multiple credit cards and loans to your name your credit score will go down because the burden of your debts keeps increasing, and the lender will perceive you as someone who is not secured financially.

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