Recently, few banks has introduced the concept of credit score-based lending. Here, a credit score of over 760 can help to get you a Home Loan for as low as 8.35%. A lower interest rate will translate to a lower Home Loan EMI. This has a positive impact on your Home Loan repayment schedule.
How is Your Credit Score Calculated?
Your Credit Score is assigned by CIBIL. This score not only determines whether you qualify for a loan or not, but also impacts the loan terms and conditions. A higher credit score improves your bargaining power to get loans at lower interest rates. You can also bring down the Home Loan Charges.
The Basis of Calculating the Credit Score
All details of your loans and payments are uploaded onto the CIBIL website. The following factors have a say on your credit score
- Credit Utilisation
How much credit you’re using. A higher credit utilisation can lower your credit score.
- Default or Delinquency
What quantum of your payments are due and the time period of the outstanding. Long defaults and high volume of outstanding debts can adversely affect the credit score.
- Trade Attributes
An analysis of the type of credit you are using, how old is your line of credit, type of credit utilisation is made to assess and assign a credit score.
Weight Given to your Credit Score
Your past performance – 30%
Type of credit used and duration – 25%
Credit exposure – 25%
Other factors like credit utilisation, recent credit behaviour -20%
The above analysis gives a correct picture of your credit history and enables to assign a credit score between 300 and 900. Most Home Loan lenders offer you the best loan terms if you have a credit score more than 750.
How to Improve your Credit Score
If you desire a loan at low rates, you have to ensure that you consistently maintain a good credit score. Well, there are times, you would unintentionally missed making a payment. However, this default, though minor can lower your credit score.
Read on to find simple tips on how you can maintain/improve your credit score.
- Ensure that you pay all your bills and EMIs well before the due date. Paying off your credit card bills in full is a proven way to ensure that your credit score remains high.
- Do not have too many credit cards or loans against your name. Pay off a loan completely before you take another. On the credit card front, limit the number of cards you hold. If your credit needs are high, you can have an increased limit on the few cards.
- Don’t fully utilise your credit limit. About 30% to 40% utilisation of your credit limit should help maintain a decent credit score in the long run.
- Reduce the percentage of unsecured debt in your total loan portfolio.
- Maintain a long credit history that can vouch your creditworthiness.
- Think twice before you sign as guarantor. Default by the borrower adds to your liability and lowers your credit score, for no fault of yours.
So, if you are on the lookout for a Home Loan and enjoy a high credit score, walk into any bank and get a loan at the lowest rates.