How to Improve Your Credit Score for Home Loan Application?

Rarely have you felt so apprehensive.

You’re actually dreading applying for a home loan.

Why?
You do not want to apply for a home loan with an inadequate credit score, only to see the application being rejected and experiencing a fall in your credit score to boot!
I mean, that’d be really unpleasant. It’d be like rubbing salt on injury.
Fortunately, it’s mymoneykarma to the rescue!

In this article, we are going to show you several ways to improve your credit score for home loan application.

Let’s jump right in.

1. Check your credit report

When you apply for a home loan, a lot of processes go on unbeknownst to you. For instance, just after you make the application, the bank or the lender checks out several essential criteria. These are:

• A steady income

• How much downpayment you can make

• Your credit history

But why should you check your credit report?
Because, my friend, it helps you to find out anything that is suppressing your credit score. This can be anything from an unpaid EMI to a loan default.
Don’t worry though! Your checking of your credit report is not going to affect it adversely. This is something called a Soft Inquiry that has no effect on your credit score.
Now, back to the point: you know by now how important it is to check your credit score before applying for a home loan.
But where can you check it?
You can do so from the three credit bureaus namely Experian, TransUnion and Equifax. You can get a free copy of your credit report once a year from all three of them.

So far so good? Fantastic! Let’s move on.

2. Dispute inaccurate information

A big reason to check your credit report is so that you may find inaccuracies in the calculations. Sometimes, the credit bureaus make mistakes in the calculations. Credit bureaus compile or develop millions of credit reports a year. Thus, a mistake in the calculations can happen in anyone’s report.
Now, if you do find such errors, you can and should dispute it by contacting the concerned credit bureau. A lingering error can make a big difference in your credit score, which can spell doom to your home loan application. This is why it is essential to remove inaccurate information.
Didn’t miss that payment? Go for a dispute resolution.
Didn’t default on your last loan? Get in touch with the credit bureau.
Didn’t take too many loans within a short time? Holler out loud! 

However, they won’t be making any corrections just because you tell them to. You need to show proof! So gather all the required proof before going for a dispute resolution with a credit bureau.

3. Pay off delinquent accounts

Maybe you already have creditors, or have taken some loans already. Doesn’t matter. But what does matter is that you pay them consistently and timely.
Whatever you do, make sure that there are no delinquent accounts. These murder your chances of getting any loan. Delinquent accounts include bills in collection, late accounts, judgments, and charge-offs.
This is why you need to pay them off, especially before applying for a home loan.
But there are already delinquent accounts in my credit report!
Take a deep breath. Take a few more. Now, what you need to do is to get rid of this delinquent account first by paying it back.

Once done, wait for 6 months. By this time, the fact that you have paid off the delinquent account shall reflect on your credit score.

That’s a good time to make a home loan application.

Now, granted that waiting 6 months to make a home loan application can be a long time, especially when the need is dire, but trust me. You won’t want to go headfirst applying for a loan when your credit score is unsatisfactory due to delinquent account records.

4. Reduce your debt-to-income ratio

If you have a high debt-to-income ratio, banks are going to question your ability to pay back loans.
The ideal debt-to-income ratio is 12%. The lower this ratio is, the easier it will be for you to get a loan.
But what is the debt-to-income ratio?
Let’s say that your income is Rs. 10,000. Your debt EMI per month is Rs. 4000. This means that your debt-to-income ratio is 40%.
Now that you know that a debt-to-income ratio is, here’s something important. Make sure that the ratio is not more than 43%.
And last but not the least:

5. Don’t incur any new debts

Most lenders may refuse you any loan even if your debt-to-income ratio is less than 12% of your total income. In other words, they see existing debts in a negative light. Because of this, till your mortgage is secured, you must consider not to take any new credit, including applying for credit cards.

HDFC Home Loan Interest Rate at 6.80%

HDFC offers Home Loan interest rate of 6.80% for loan amounts up to 30 lakhs for Women Applicants. The offer has been in effect since 11th January, 2021.

This special Housing Loan Scheme is for a limited period only, and can be availed if the loan is disbursed on or before 31st March, 2021. HDFC decides eligibility for the offer based on parameters such as credit scores, segments, details of other loans, etc., and is applicable only for applicants with the credit score of 730 and above.

The offer can be availed on Home Loans including Home Improvement, Home Extension, and even Refinancing/ Balance Transfer from other lenders.

However, as the offer is applicable only for loans under the ‘Adjustable Rate Home Loan Scheme’, it is subject to change at the time of disbursement. The rates are linked to HDFC's BenchMark Rate. Hence, they are variable throughout the loan period as well.

FAQs

What is a good credit score for home loan?
A credit score that’s between 700 and 760 is considered to be moderate. However, that depends on the lender. With a score in this range, you can get home loans easily but a slight rate of interest.

Can I get a home loan with 700 credit score?

Yes. With a score of 700, you can get almost all home loans. As you reach 740 and beyond, you can get any of them. The terms and interest rates just get better as your credit score increases.

How can I improve my credit score to get a mortgage?

Here are a few things you can do to improve your credit score before getting a mortgage:

1) Dispute errors and inaccurate information

2) Pay off debts and delinquent accounts

3) Make timely payments to bury delinquencies

4) Bring down your debt to income ratio

5) Check your credit score regularly

6) Do not acquire new new debt

To sum up

So there you have it! Not one, not two, but 5 ways to increase your credit score (or at least to prevent it from dropping). With these strategies, it shall be easier to maintain a healthy credit score before applying for a home loan.