Purchasing or refinancing a home becomes easier if you have a good credit score. Let us look at the ideal credit score needed for a home loan.
A credit score is a measure of your financial credibility. Maintaining a good credit score is vital to getting a good home loan. It is a good practice to review your credit score before applying for a home loan. Keep in mind that a good score does not guarantee a loan; it only improves your chances of getting one. Plus, it is not the only factor considered for a loan.
Credit scores are determined by the Credit Information Bureau (India) Limited, which provides a Credit Information Report (CIR) of your financial history. This report includes a detailed analysis of your borrowings, repayments, defaults, and closures. This article discusses the optimum credit score needed for a home loan and a few tricks and tips to improve CIBIL score.
Factors That Contribute to a Good Credit Score
According to CIBIL, 750 is a good credit score to buy a house. While it is the minimum credit score required to acquire a loan, any score above 800 will guarantee it. The higher your score, greater is your chance of getting a loan. The amount of loan approved will also be higher with a high credit score. Therefore, it is best to have a high CIBIL score in your application for the loan.
Some lenders will offer loans with a low credit score, but these loans will come with a high rate of interest. The CIBIL score for a home loan is an estimate that will greatly help you in your house-buying endeavour. However, it is wise to make sure you are knowledgeable about other factors such as current debts, credit cards, debt-income ratio, current payments etc. that will also contribute to acquiring a loan without hassles.
If your credit history is weak and you have a low credit score, do not worry. There are several ways to improve your credit score and strengthen your portfolio.
- Repay you bills on time. Do not delay or wait until the last moment to pay your instalments.
- Pay off your debts as soon as possible. If your finances are stable, pay off any long-standing debts.
- Do not default on your EMIs. Doing so will negatively affect your score.
- Minimise your credit card usage. Having a credit card does not mean you utilise it to its limit even if you have the means to pay it off. Optimal usage would be about 40% to 50% of your limit.
- Limit the number of credit cards to 2 or 3. A large number indicates your dependency on credit.
- Do not close a credit card account.
- Keep a balance between your secured and unsecured loans. Too many unsecured loans will cause a drop in your credit score.
- Control your spending. Analyse your needs and plan accordingly.
- Review your credit report regularly. This will ensure that you are on the way to boost your credit rating.
Improving your CIBIL score for a home loan will take time, but it’s worth the wait. It takes a lot of effort, and efficient planning to build a credible portfolio. Try to implement good financial practices to raise your credit score and rank high in CIBIL reports.