Having your own house is often a dream come true. However, do you know that it can affect your credit score too?
When you buy a house with a loan, then the way you manage the loan repayment and other types of credit during the tenure affects your credit report.
Home Loan Process and Credit Score
One of the biggest mistakes you can make when applying for a home loan is overlooking the importance of CIBIL score check.
There are two main reasons why you should always check your CIBIL score before applying for a loan:
- Credit Health
When you apply for a home loan, the banks send an inquiry for your credit report to assess your credit profile. However, this affects your score itself.
If you have applied for a loan at multiple banks at the same time, which many people do to increase their odds of loan approval, then it can have an adverse effect on your report. This is because this behavior is commonly dubbed as “credit hungry”. In other words, it suggests a sense of desperation and may lead to credit score damage.
By performing a CIBIL score check, however, you can see whether your report is in a good state or not. If it isn’t, you can work on it first and then apply for a loan. This way, you don’t have to apply for multiple loans. Since there will be fewer credit report enquires now, there won’t be any credit score damage.
- Better Interest Rate
Generally, a home loan has a long tenure which can be as much as 20 years. Thus, you would want to get the lowest home loan interest rate possible. Again, this is where checking your credit score can help.
If your score is low, then you can work on it so that when you do apply for a loan, you can negotiate with the lender for a better interest rate.
Credit Score During Home Loan Repayments
The way you repay your loan can also affect your CIBIL score. In that regard, the following are some of the things you should keep in mind:
One of the most important things that you should be careful about during the loan tenure is the repayment schedule. It’s super important that you pay all your EMIs on time. This is because punctuality matters a lot when it comes to credit score calculation.
If you miss an EMI, then your bank informs their credit bureau about the same. They, in turn, mention this in your credit report under the tag DPD which stands for “Days Past Due”. So, if you pay an EMI 11 days past the due date, then in the accounts section of your credit report there shall be a remark like “DND: 11”.
Remarks like DND can have a big impact not just on your credit report but your score as well. Thus, make it a point to repay all the EMIs on time at all costs.
Credit Report Details
If you want to maintain your credit score, then be sure to conduct a CIBIL score check every once in a while. This is because as you will repay your loan, it’s possible that an error takes place in your report which affects the score.
For instance, your bank may accidentally inform the credit bureau that you missed a payment, or you may become a victim of identity fraud, etc. Thus, by checking your report every few months you can avoid these issues easily.
While you have to be careful with a home loan, it can also improve your score easily and open more doors for a better home loan interest rate in the future. This is because when you take a home loan, it improves the credit variation in your credit report, assuming that it’s currently based on just a credit card repayment history or a personal loan repayment history, etc. In fact, the more is the variety, the better is the score.
The bottom line is that home loan can be good or bad for you depending on how you manage it. If you are punctual with your EMIs and don’t accumulate a high debt, then it’s good for you. However, if you delay the payments frequently or simply default at one point, then it can have serious repercussions on your score.