Thousands of people in developing countries such as India encounter rejection from lenders when they apply for home loans. The majority of rejections are unexpected for home loan applicants. There are a variety of reasons why an application may be rejected. Two of the most common reasons for home loan rejection are:
a. Low Credit Score
b. Lack of Documents
In this blog, let us discuss how improving your credit score is significant for quick home loan approval.
What is a Credit Score?
Credit Scores are numerical representations of a person's ability to repay a loan. It generally ranges from 300-850. Usually, lenders prefer the credit score issued by the CIBIL credit agency. Lenders prefer the CIBIL Score because it has been operational for many years. With 500 CIBIL members, lenders pull data on home loan applicants and make home-buying decisions based on it.
Credit Score Range for Home Loan Approval
CIBIL Score - Chances of Approval
Above 750 - Very high
650-750 - Availability of many lenders
550-650 - Low Score and availability of lenders at a high-interest rate
Less than 550 - Very difficult to obtain home loans
The CIBIL score required for home loan approval is evident in the above chart. For people to avoid high-interest rates by lenders, they must understand the importance of credit scores.
Factors Affecting Cibil Score:
1. History of payments
2. Credit limit utilization
3. Running loans
4. Unsecured loans
Improve your Credit Score
Maintaining a good CIBIL Score requires financial discipline. Missing payments and debt defaults affect the CIBIL Score. Bad credit can lead to the rejection of your home loan request. To maintain the financial portfolio and enhance your Credit Score, follow these tips -
1. Fix errors in the Credit Report: There can be errors in your credit report. Check it and if you notice any discrepancies, immediately notify the credit bureau.
2. Timely Payments: To pay outstanding installments on time, you can set email and SMS alerts. You can also set up payment debit options in advance.
3. Don't keep applying for the same credit card despite rejection: If you have been rejected by any lender for any credit card, don't keep applying for the same. All these activities are considered while determining your credit score.
4. Avoid unsecured loans: Generally, don't opt for unsecured loans that don't have any collateral backing. This affects the CIBIL Score negatively.
5. Limit yourself while utilizing the credit limit: Let's say your credit limit on a card is Rs 2 lakh. Utilize a portion of the credit limit; using the entire amount can negatively impact your credit score.
Rather than delaying payments, take a loan or pay monthly installments on time. This will improve your credit score, helping you qualify for a home loan without hassle.