Becoming a homeowner involves numerous formalities, processes, and research. One of the biggest aspects of owning a home is the funding it requires. As most people don’t have the entire amount available, many homebuyers depend on a home loan to help them finance their investment. If you are planning on applying for a home loan, your CIBIL score can be one of the most important factors which determine whether your application gets approved. A CIBIL score is a number between 300-900 and is based on your personal credit history. A low credit score might tell banks that you are not a reliable candidate for a home loan.
A CIBIL score can fall under one of the below categories:
Excellent Credit: 760+
Good Credit: 700+
Fair Credit: 640+
A high credit score indicates that you have paid all of your previous loan installments on time and therefore, will be a good candidate for a future loan. In general, a credit score of above 750 will help you get your home loan approved. Anything less than 640 might make it difficult for you to get your home loan application approved by a bank.
A low CIBIL score doesn’t necessarily mean you have to give up on your dream of buying a home. There are several steps you can take to ensure that your CIBIL score increases significantly before you apply for a home loan.
Ensuring all your payments are made on time is essential when it comes to improving your CIBIL score. Be it your personal loan or credit card payments; it is always a good idea to set up an automation system in place so that you do not miss any payments. In fact, your track record of making payments on time accounts for one-third of your score. Therefore, always ensure you never skip or delay payments. If you already have card payments that are delayed, clear all your outstanding dues immediately. This is one of the fastest ways to increase your CIBIL score.
Credit cards have become a very important tool for most of us and facilitate many of our payments. While they are undoubtedly a boon, overuse of the card will impact your CIBIL score negatively. It is advisable not to use your credit limit fully or get too close to it because it might give banks the impression that you are a careless spender. You should also ensure that you are not just paying back the minimum stipulated amount due on your credit card every month. Instead, always pay back the entire amount due to maintain a healthy CIBIL score. It’s also a good idea to keep the number of credit cards you own to a minimum, so you don’t lose track of payments.
Showing credit hungry behaviour is a red flag and can decrease your CIBIL score. The more loans you apply for, the higher the possibilities of a poor CIBIL score. If you have applied for too many loans, it might tell banks that you are irresponsible with your funds and therefore, a risky candidate for a home loan. So keep the borrowings to a minimum and apply for loans only when they are actually necessary. Also, in case your loan application has been rejected, do not immediately apply again. Work on improving your CIBIL score and then reapply.
All loans fall into two broad categories – secured loans and unsecured loans. Secured loans are protected by collateral and are high-value loans like home loans or car loans which, when paid on time, contribute to a positive CIBIL score. Unsecured loans, however, are the loans which do not need any collateral, like personal loans or credit cards. The more unsecured loans you have unpaid, the lower your CIBIL score will drop. This is why you should try to avoid taking too many unsecured loans. If you have unsecured loans, pay them back on time.
Sometimes, even if you feel you have paid all your dues on time, your CIBIL score might not reflect that. If you don’t understand the reason behind your low CIBIL score, you should go through your entire credit report in detail. Sometimes, old loans that have been repaid might still show up as pending, decreasing your overall CIBIL score. If you spot any errors, you can submit an appeal on the CIBIL website. The changes should be reflected in your CIBIL score within 30 days.
Improving your CIBIL score is the only way to ensure your home loan is approved. Follow our guaranteed tips and methods for increasing your CIBIL score and move one step closer to buying your dream home. For more information on home-buying, be sure to check out the home buyer’s checklist and contact Legacy and find yourself a house you can call home.