For many, owning a home is more than an aspiration – it’s a dream. Fulfillment of the dream requires careful planning as it entails a substantial financial commitment. Your credit score can prove beneficial in the planning mix as it can help you secure favorable interest rates.
Here, we delve into some practical steps to elevate your credit score and obtain advantageous terms on your home loan.
But first, what is a credit score, and how can it help?
Your credit score represents your creditworthiness through a numerical value. The higher the score, the more the lender considers you creditworthy. A higher score boosts your chances of loan approval and helps you qualify for a preferential interest rate. Given the substantial principal amounts involved in home loans, even a slight reduction in interest rates can translate into significant long-term savings.
So, how do you improve your credit score?
Regularly Monitor Your Credit Report:
Obtain copies of your credit report from credit bureaus and scrutinise them for inaccuracies, such as incorrect personal details or unauthorised accounts. Rectify any errors promptly to avoid any adverse consequences for your credit score.
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Timely Bill Payments:
Promptly pay your bills, including credit cards, loans, and utilities, etc., for a healthy credit score. Set up automatic payments or reminders to avoid missing due dates.
Reduce Credit Card Balances:
High outstanding balances on your credit cards in relation to your credit limit tends to adversely affect your credit score. Strive to keep balances below 30% of the available credit and promptly pay off any high balances for better scores.
Diversify Your Credit Mix:
Maintain a diverse credit mix, encompassing credit cards, installment loans, and retail accounts, to positively influence your credit score. However, refrain from opening new accounts solely for diversification purposes.
Avoid Closing Old Accounts:
The length of your credit history significantly influences your credit score. Avoid closing old credit accounts, as doing so may shorten your credit history and potentially lower your score.
Limit New Credit Applications:
Each new credit application results in a hard inquiry on your credit report, which may temporarily lower your score. Be selective and avoid multiple applications within a short period to prevent appearing unhealthily credit-hungry.
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As you embark on your home-buying journey, proactively improving your credit score may help you secure favorable terms for your home loan. Focus on improving your score for a more financially secure and rewarding homeownership experience. Remember, your credit score isn’t merely a number – it’s a key that can potentially unlock the door to your dream home at a more affordable cost.
Views expressed by: Abhishikta Munjal, Chief Risk Officer, IIFL Home Finance
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