Tips to Improve Credit Score Before Applying for a Home Loan

When purchasing a house in India, there are several important factors to consider. One of the key aspects is maintaining a good credit score. A strong credit score reassures lenders of your ability to repay the loan. A higher score increases the likelihood of loan approval and can also help you secure a lower interest rate.

This article will explain ways in which you can work on your credit score, the preferred score for home loan, and easy steps to improve your credit score.

What is the Minimum Credit Score Required for a Home Loan in India?

In India, the minimum credit score for home loans is 650, usually. While not all lenders offer loans to people whose credit scores are below this threshold, others do offer but on less friendly terms. For better interest rates and conditions, ensure your score is at least 750+. This is calculated by institutions like CIBIL that rate individuals’ borrowing behaviours using numbers ranging from 300 to 900.

Why a Good Credit Score is Important for Home Loans?

Your credit score greatly influences your ability to get a home loan. It indicates how well-organized you are financially and what level of risk you could pose to the lender. If you have a poor credit history, this could result in high interest rates or even loan application rejection. In the long run, knowing how to improve one’s credit score can help avoid borrowing mistakes.

Also Read: Why is Credit Score Important for Loans?

Tips for Improving Credit Score Before Applying for a Home Loan

If you want to learn how to improve your credit score, these steps can be useful:

1. Pay Your Bills on Time

One of the easiest ways to enhance your score is to repay debts on time. When bills are delayed, they lead to a significant drop in points. Set reminders or schedule payments so that there are no delays.

2. Manage Credit Card Balances

The credit utilisation ratio should ideally be below 30%. For example, if one has a credit limit of INR 1 lakh, they should avoid using more than INR 30,000 in one-go.

3. Check Your Credit Report Regularly

A negative score could result from errors in the credit history. Review your CIBIL score at least once every year. If anything is wrong, contest it quickly with the relevant authorities so that it does not adversely affect you.

4. Maintain a Healthy Credit Mix

A mix of secured loans (like home loans) and unsecured loans (like credit cards) shows lenders that you can handle different types of credit responsibly. Avoid depending solely on unsecured loans, as it might indicate financial instability.

Pro-tip: Use a Home Loan EMI calculator, to determine your EMI amount. These calculators offer quick and accurate results, saving you both time and effort, and help you plan your EMI payments efficiently.

Improving Credit Score — How Long Does It Take?

It’s not an overnight process to improve your credit score. Depending on your current score and spending behaviour, it might take between 6 to 12 months before you see significant improvements. Consistency matters most in this regard.

Also Read: Home Loan: All You Need to Know – Godrej Capital

Common Mistakes to Avoid

The following common mistakes should be avoided while working towards improving credit scores:

• Missing EMI (Equated Monthly Instalment) payment.
• Overusing credit cards beyond the recommended limit.
• Ignoring discrepancies in your credit report.
• Closing unused credit accounts without understanding the impact.

According to CIBIL data, having a score above 750 can greatly enhance the chances of being approved.

Also Read: Bad Credit Score and its Impact on Home Loan Eligibility

Final Thoughts

Managing your credit score and understanding its requirements for home loan application can save you from unnecessary stress. A high score doesn’t just help with loan approval but also avails you of better terms on your loan application.

With the right approach to managing your finances, you can secure the best deals on your dream house.

So, take control of your future—

Apply now for a home loan and take the first step toward owning your home!

FAQs

Q.1. How to get 800 as your credit score in 45 days?

A. Here are 10 ways to increase your credit score by 100 points - most often this can be done within 45 days by doing the following:

• Check your credit report
• Pay your bills on time
• Pay off any collections
• Get caught up on past-due bills
• Keep balances low on your credit cards
• Pay off debt rather than continually transferring it

Q.2. How to increase CIBIL score for home loans?

A. How to Increase CIBIL score from 300 to 750?

• Correct the errors on your credit report
• Make timely payments
• Take starter loans
• Limit your loans
• Diversify your credit
• Maintain your credit utilization ratio
• Don't settle your loans
• Plan your loans in advance

Q.3. By how many points does your credit score drop when you apply for a home loan?

A. Typically, the hard credit pull required to get a mortgage loan will decrease your credit score by about 5 points. Once you get the loan, you might have a short-term dip of 15 – 40 points. If you consistently make monthly payments on time, though, you'll likely see your credit score recover and even improve.

Q.4. What is the trick to increase your credit score?

A. The answer lies behind paying your loans on time, not getting too close to your credit limit and having a long credit history. Also, make sure your credit report doesn't have errors.

Q.5. If I miss paying EMI, will it affect my credit score?

A. Yes. Defaulting on EMI payments can negatively affect your credit score.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com