Credit Score’s Impact On Home Loan Approval

Introduction

Buying a home is a dream that many aspire to achieve. However, the cost of home ownership can be overwhelming for most individuals. A home loan offers a convenient way to finance the purchase of your dream house. But did you know that one of the most critical factors in securing a home loan is your credit score? In this article, we will delve into factors that affect credit score home loan approval and also discuss steps you can take to achieve this credit score for home loan.

Understanding credit score

Your credit score is a numerical representation of your creditworthiness based on your credit history. It ranges from 300 to 900, with higher scores indicating better creditworthiness. Lenders use this score to determine whether you are likely to repay your debts on time. 

When applying for a home loan, lenders want assurance that you will repay the loan amount along with interest over the tenure of the loan. A good credit score online demonstrates to lenders that you have a history of responsible borrowing and are likely to continue this behaviour in the future.

How does credit score home loan get impacted?

Lenders consider several factors when assessing an applicant's eligibility for a home loan. Your credit score plays a crucial role in this evaluation process. A high credit score indicates that you are less risky as a borrower, increasing your chances of loan approval. 

On the other hand, a low credit score may lead to rejection or higher interest rates on your home loan.

Let's understand how different credit scores can impact your home loan journey:

1. Minimum credit score requirement

For home loan eligibility, the credit score for home loan is around 750. This score acts as a benchmark and reflects your creditworthiness. Meeting this requirement is the first step towards securing a home loan.

2. Loan approval

Maintaining a good credit score not only increases your chances of loan approval but also helps you secure better terms and conditions. Lenders view borrowers with higher credit scores as low-risk individuals and are more likely to offer them lower interest rates and favourable repayment options.

On the other hand, a lower credit score may result in higher interest rates, increasing the overall cost of your loan.

3. Loan amount

Your credit score home loan also affects the loan amount you can avail yourself of. Lenders consider your creditworthiness when determining the maximum loan amount they are willing to offer you. A good credit score can help you qualify for a higher loan amount, allowing you to purchase the home of your dreams.

4. EMI calculation

Your credit score plays a role in determining the Equated Monthly Instalment (EMI) you will have to pay towards your home loan. A higher credit score can result in lower interest rates, leading to lower EMIs. Conversely, a lower credit score may lead to higher interest rates and higher EMIs.

How to improve credit score for home loan?

If your credit score is not up to the mark, here are some steps you can take to improve it over time:

• Pay your bills on time.
• Try to keep your credit card balances low and pay them off in full each month.
• Review your credit score online regularly to check for any inaccuracies to improve your credit score.

Conclusion

Your credit score home loan plays a crucial role in determining whether you qualify for a home loan and the terms offered to you. It is important to maintain a good credit score by paying bills on time and reducing outstanding debt.

If you are worried about your credit score for home loan, Mahindra Finance can provide the expert guidance and support you need. Mahindra Finance offers coverage for construction costs up to 75% (excluding land) for a duration of up to 20 years, with no additional fees for early repayment. 

FAQs

1) How can I check credit score online?

Several credit bureaus in India, such as CIBIL, Experian, and Equifax, provide online platforms where you can access your credit score online for a nominal fee.

2) What is the minimum credit score required for home loan?

The minimum credit score required for home loan is typically around 750.

3) How often should I do a credit check?

It is advisable to do a credit check at least once a year or before applying for significant loans such as home loans. 

4) Can I improve my credit score quickly to get a home loan?

Improving your credit score takes time and consistent effort. It is unlikely that you can significantly increase your credit score overnight.