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Your Guide To Improving Your Credit Score

A credit score comprises your credit reports that help banks and financial institutions understand your creditworthiness.

The past few years have observed a drastic increase in the number of people opting for home loans. According to the Reserve Bank of India, outstanding home loans at banks grew by 7.6% between FY 20 and FY 21. While applying for a home loan, one of the key parameters that are verified relate to your credit score. This score is crucial as it helps banks decide the approval of your home loan application.

A credit score comprises your credit reports that help banks and financial institutions understand your creditworthiness. This is based on your repayment habits over a period of time. The bureaus collect data from its members, including individual consumers and lending institutions to provide information about your credit history and creditworthiness.

A credit score between 750 and 900 is considered as very good. The higher your score, the more likely you are to get your home loan application approved.
A higher credit score can also help you avail of benefits such as higher loan amounts, lower interest rates, and longer repayment tenure. If your credit score is below 675, it is recommended to improve your credit score before applying for a home loan.

Tips to Improve Your Credit Score
Here are some effective tips that you can follow to improve your credit score:

1. Frequently Check Your Credit Report
The first step is to get your credit report and evaluate it for errors and mistakes. Even if you have been paying on time, there can be scope for error which can affect your score negatively. You must ensure that you have been paying your credit bills on time for at least 5-6 months before you apply for a home loan. According to the data collected by CIBIL, 79% of people who have a CIBIL score of 750 and above get their home loans approved easily.

2. Pay Your Credit Card Bills on Time
Before applying for a home loan, make sure that you have been paying your credit card bills on time for the past six months. If you are consistently late in paying your credit card dues or are maxing out your credit limit, your credit score can be negatively affected. In addition, you can begin to follow the “30% rule”. This rule states that you should use only 30% of the credit limit allocated on your credit card. This can help increase your credit score significantly.

3. Be Timely With Your EMIs
To have a good credit score, make sure that you pay your EMIs on loans and mortgages regularly. Running late on these payments can affect your credit score. Banks and lending institutions will look into your credit score to understand your potential repayment patterns. If you have significant debt from other loans, you can consider alternatives such as restructuring your loan. This can help you pay your EMIs on time.

4. Avoid New Loans
A home loan can help you buy your dream home. However, with a new home comes additional cost. You may want to decorate your home with furniture and other accessories. Avoid availing of another loan to meet these needs. Make sure that you avoid taking any further loans until your home loan has been approved.

5. Track Your Co-Applicants’ Payments
If you are applying for a loan with a co-applicant, ensure that you keep track of their payment as well as their credit history. This can help you maintain your credit score.

Don’t worry if you are planning to apply for a home loan and have a low credit score. All you need to do is identify your current credit score and adopt a few financially healthy habits to improve your credit score. Repay your dues on time to ensure your credit score improves exponentially.