How does your credit score impact your home buying process?

Credit scores are relatively new in India, but it is now widely used by lenders to determine the creditworthiness of an individual. The Lender’s focus is more on your credit score, especially in the home buying process. So, before you set out to buy property, you must make sure that you have an adequate credit score.

What is a credit score?

A credit score is a three-digit number used as an indicator of your creditworthiness. It ranges between 300 to 900, with 900 depicting the maximum creditworthiness. The evaluation is performed based on your previous credit repayment data and overall credit management.

The four RBI licensed credit information companies in India who can provide credit score are:

  1. Credit Information Bureau (India) Limited (CIBIL)
  2. Experian
  3. Equifax and
  4. Crif High mark
However, CIBIL is the most popular and widely accepted amongst the four.

How does it affect the home buying process

Whether you are buying a new property or constructing a house, the process usually starts with a home loan application. A home loan provides you with tax benefits, secured financing, and the ability to purchase the property you like without squeezing up your hard-earned savings. But not if you have a low credit score. Lenders, nowadays, pay close attention to your credit score before lending money for home buying.

So if your credit score is low, the loan can be rejected or approved even if it’s for a smaller amount and, if approved, still fetch a higher rate of interest. Due to which it may directly impact the home buying process, as you will now have to adjust with a small property or cancel the purchase entirely.

Whereas, if the credit score is good, your loan will be approved quickly for the required amount. The interest rates for you will be lower, and the entire home buying process will be swift and hassle-free.

Minimum credit scores and loan types

Loan eligibility depends on credit score. It must be at least above 600, with a debt-to-income (DTI) ratio of 40% or lower. You require a minimum CIBIL score of 620 to qualify for home loans and a minimum between 720 to 750 to be eligible for personal loans. Individuals with a CIBIL score above 740 get the lowest interest rates and prompt approvals from lenders. So the higher the score is, the better it is for you.

How can you improve your credit score

Improving your credit score is a long-term process where your credit score gradually improves with proper debt management. Here are a few tips:
  1. Pay bills on time
  2. Track your EMI deadlines and make payments on time
  3. Take loans for a longer tenure and make regular on-time payments.
  4. Create a credit history if you don’t have any. Start by getting a credit card.
  5. Improve credit history by proper management of all credit cards. Always pay the minimum payment due on time.
With the guidance of the above tips, you can expect a significant improvement in your credit score within a year or two. So the best option is to plan and raise your credit score well before you begin with your home buying process.
Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. Ashar Group does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.