Today, no bank approves a loan without checking your credit score or the CIBIL TransUnion score.
When you apply for a Home Loan, your credit score gets evaluated along with other factors.
What is a Credit Score?
A Credit score is a numerical expression—between 300 to 900—that, in a nutshell, reflects your creditworthiness. The analysis is done on your credit report, which is extracted from credit bureaus; a credit report is the record of your borrowing history.
Lenders evaluate the potential risk they face in giving you the money. Your credit score also determines whether you qualify for a loan, the rate of interest that will be levied at you, and the credit limit.
The closer your score is to 900, the more likely your lender will be to sanction your loan.
How is the Credit Score Calculated?
Every bank or financial institution has its own way of arriving at this score, but they all study the loan repayment behavior of an individual. In general,
- 30% weightage is given to the past performance of the borrower.
- 25% depends on the kind of loan you have taken and the time you took to pay it off.
- 25% comprises the amount of credit you have been exposed to
- the final 20% is allotted to how you have use the credited amount, and how many credit cards you own.
So How Much Credit Score Does a Home Loan Require?
The minimum credit needed to apply for a Home Loan is 620. Below 620 your loan application is likely to be rejected without so much as a second glance. The higher your credit score, the lesser the rate of interest you will be charged, and stronger your chances of getting the loan are.
Here’s a rough credit score mark sheet for your reference:
- Excellent – 760 to 850
- Very good – 700 to 760
- Good – 660 to 699
- Moderate – 620 to 660
- Poor – 580 to 620
- Very poor – 500 to 580
If you have anything less than 620 we suggest you don’t opt for a Home Loan, and instead go in for alternative means of financing your home.
If it’s lower than 620 though, it’s not the end of the world. There are ways of amending your credit score.
How Can You Boost Your Credit Score?
Your rate of interest largely depends on your credit score. You can avail a Home Loan with a bad credit score as an FHA Home Loan accepts applicators with a credit score of even 580.
But if you want to boost your credit score here are a few things you can do:
- Start paying all your EMIs on time.
- Keep your credit card balances as low as possible
- Take a credit card only when needed.
- Use your old credit cards. It’s a sign of a long lasting, timely-managed credit account.
- Never use more than 30% of your credit limit—this reflects financial discipline.
Use a credit score calculator to keep track of your credit score. If you’ve got a good score, go ahead and apply for a Home Loan. If you don’t, you can use these pointers to improve your score first.