If you’re a new entrant into the home loan space, you may be confused by the many technical terms in this subject. Among these, “credit score” is one of the crucial aspects that you have to understand thoroughly so that you can take the right decisions. This is a number that plays a huge role in securing an attractive house loan and transforming your dream home into a reality.
What Is A Credit Score?
This is a set of three numbers that provides information about your financial health and how credit worthy you are. This means that the lender can be confident that you are likely to repay your loan punctually. A high score typically means that you represent a lower risk for the lender. It tells the viewer about your financial discipline, and whether you are able to manage debt in the best way or not.
There are several agencies and bureaus that are authorized to create these scores. They include well-established firms such as TransUnion CIBIL, CRIF, Experian, Equifax and more. These firms are all regulated by the Reserve Bank and Acts of Parliament.
Credit agencies collect and process data, generate an accurate credit score, and share the credit score with authorized persons. Other activities include RBI related information gathering, and research activities. Credit bureaus are more individual focused and provide the credit scores.
Scores are compiled based on your repayment history if any, how you well have used and managed credit in the past, whether you have a stable history with any bank or financial institution, and whether you have a more diverse mix of credit instruments such as cards, auto loans, and more.
How Does Credit Score Impact Your Loan?
Your credit score is like a quick ready reckoner into your financial persona. It projects how trustworthy you are, how likely you are to make punctual repayments, whether you can confidently manage the rate of interest on home loan, whether you could default because of financial instability, and whether the lender can confidently extend the house loan.
It not only provides information about whether you are credit worthy, but it also has an impact on the amount of loan you get, the terms on which you get it, and the rate of interest on home loan that you get.
In general, a score higher than 750 ensures that you get a loan quite easily and on good terms. Below 650 means that you may not be approved or the lender may impose higher interest, ask for a more credit-worthy co-applicant, or require you to make a very high down payment.
The credit score is the first line of information that the lender looks at to evaluate whether your house loan can be approved or not. The score determines your eligibility for different types of loans and a higher score gives you more options you can calculate it with emi calculator.
High credit scores are consistent with swifter processing, better terms and conditions and rate of interest on home loan, lower down payments and processing fees.
When your credit score is higher, you could avail of a longer repayment tenure and more flexibility in the repayment schedule.
On the flip side, a lower score impacts the chances of securing a home loan negatively. It shows that you may not have managed your debt properly in the past. It could reveal a history of missed payments, default, or late payments. If you have availed of multiple loans within a short period, it may convey that your financial health is poor.
If you have a high balance or large unpaid amounts on your credit cards, this could reflect negatively on your credit score. These represent unsecured loans, unlike home loans or car loans which are secured loans. Too many unsecured loans tells lenders that you have an unhealthy balance of secured and unsecured loans.
A poor credit score alerts lenders to the possibility that providing such a person with a loan could pose a significant risk.
