Credit report & its importance in home buying
Home buying is still a dream for many in India and there are a lot of challenges involved in it, right from finding the right property to completing all the documentation process and finalizing the deal. Getting a home loan is one of the most cumbersome processes involved in home buying and many people face rejections in home loans. Though there are various reasons for the home loan rejections, a low credit score could be one of the most common ones.
Here, let’s discuss what a credit score or credit report is, and how it’s significant for a speedy home loan approval.
A credit score represents one’s financial capacity to pay back a loan. It is issued by CIBIL (Credit Information Bureau of India), the credit agency responsible for verifying the applicant’s credit history before providing a home loan. Lenders prefer the CIBIL score to provide a home loan to people as it is more reliable and has been in operation for many years. CIBIL comprises 500 members who take care of getting the home loan applicant’s data and provide loan for buying a property. Homebuyers with a CIBIL score of 750 and above have a better chance of getting a home loan.
Find below various CIBIL scores and the chances of getting a home loan approved for it.
- CIBIL Score 750 and above- Very good chances of approval
- A Score between 650 & 750- High availability of lenders
- CIBIL Score between 550 & 650- low chance. Lenders are available but with high-interest rates
- Scores less than 550- Chances of getting a home loan are very low and difficult
CIB (Credit Information Bureau) maintains all the records of the borrowers with the credit transaction details being provided by the financial institutions. Any information regarding your credit transactions, loans, and credit inquiries besides credit card transactions provided by the financial institutions are collaborated and maintained as a single credit report by the bureau. All your credentials and creditworthiness will be verified by the lender before sanctioning a home loan to avoid defaulters.
Why is a credit score important?
While millions of people are applying for a home loan, there is a necessity to understand the importance of credit score in obtaining a home loan at lower interest rates. As it is infallible that the lenders will obtain all the details of your credit profile, it would be helpful and significant for you to better know about it beforehand so that your home loan availability can be easily speculated. This will also help you arrange finances in some other ways in case the home loan is not approved.
Factors influencing CIBIL Score
To maintain a good CIBIL Score, adhering to financial discipline is important. Any failed or missed payments and default in debts will lower the CIBIL Score. If your credit score is bad, there are high chances of getting your home loan rejected. Therefore, it is essential to keep your financial background clear so that your credit score is maintained high. Following are some things that affect your CIBIL Score
- Unsecured loans
- History of payments
- Running loans
- Credit limit utilization
To keep your credit score high, here are some suggestions provided for you.
- Check for any errors or discrepancy in the Credit Report and fix it by bringing it to the notice of CBI
- Set the mail and SMS alerts to pay installments on time. You can also set up the payment debited options in advance to pay any outstanding amount on time.
- Avoid repeated application for credit cards in case if you have been rejected by the lender as this will affect your credit score
- Avoid taking unsecured loans that aren’t supported by any collateral since this will influence your credit score in a negative way
- Always maintain your credit limit as the entire utilization of your credit limit will lower the credit score.
It is important to know about these types of real estate jargon before you start investing in a property and putting a huge sum of money into it. Maintain a good financial profile to get a home loan and make your dream of buying a home fulfilled without any hassles.
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Your credit score helps lenders decide how likely you are to repay your debts and plays a significant role when securing a mortgage. Scores range from 300 – 850 points and are based on: Your payment history and ability to repay your debts on time. Late payments will lower your credit score.
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