Tag: home loan

Will You Get You Get Your Dad’s Credit Score?

Death of loved ones, especially a parent can be traumatic. However devastated and sad one might be, there are various obligations and duties that need to be taken care of both financially and other wise after a parent’s demise. The family members have to necessary action regarding various bank accounts, securities, properties and assets that may be held in the deceased person’s name and so on. While bank holding, assets and property are governed by inheritance rules, this rule does not apply to credit scores.

Will You Get You Get Your Dad’s Credit Score?

Before answering the question it is important that we understand a little about credit report. Credit reports reflect how a person has treated his/her debt in the past and what his levels of debt are; depending on various factors included in the report and individual’s credit score is calculated. Thus a score reflects an individual’s credit worthiness based on his credit history.  So when a person expires his/her credit score is not passed on to the family members as it reflects an individual’s creditworthiness which has no bearing on his children. So, if your dad passed away you will not get his score.

Your dad would have had loans and cards in his name and when the person expires there are specific rules to be followed to deal with them. Just like if you have loans and cards in your name they reflect your credit history and how responsible or irresponsible you are towards debt and not somebody else’s attitude. So if you default it will be reflected only in your report and not any other family member’s report. So while you can inherit your father’s property you will not get his score.

What happens to the Credit Report of the Deceased?

So, now we know that when the parent expires the credit report is not passed on to the children but what happens to the credit report of the deceased. It is important that the family member get the report of the person to get an idea about the open loans, cards etc that a person has in order to get a clear estimate of what is owed to lenders. The family members then need to inform the concerned lenders and credit card companies about the demise of the borrower or the card holder; a valid death certificate needs to be attached along with the application that is submitted to various FIs.

Depending on the type of loan there would be various formalities that will have to be completed but the lender will inform the credit agency that the person in question is no more and a deceased indicator is attached to the credit report of the person. This prevents any identity theft or fraud that may happen by misusing the identity of the deceased. The process of surrendering the card or closing a loan may take time but in the meantime, it is important the report be marked as that of deceased.

There might be instances when there may be joint home loans that the deceased may have taken with their kids, in such a scenario the fate of the loan impacts the score of all the applicants. After the demise of one applicant, who in this case is the father, the surviving applicant/s will have to make sure that they inform the financial institution about the situation and continue to pay the EMIs in order to avoid defaults and penalties.

So while you will not get your dad’s score after he expires there are a host of things that you may need to do which includes informing the concerned lenders and also take appropriate action in case of joint loans.

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Can The Credit Score Prevent You From Taking A Home Loan?

Buying your dream home is like achieving a major milestone in your life. After you have done your research and decided on a location to buy your house, the next hurdle that you need to cross is to get the approval of finances. There are various factors that are considered by the lenders to determine your eligibility for the loan. Your credit score is the most important among them. Your credit score is a three digit number that summarises the information in your credit report. Your past repayment history, outstanding debts, credit utilization ratio, credit mix, length of the credit history are some major factors that determine your credit score. All lenders look at this number to understand your financial standing and determine the risk associated with you as a borrower. It gives them a quick impression of your probability of default based on the past behaviour. Most financial institutions have a minimum criteria that one needs to satisfy in order to get approved for the loan. Different banks have different guidelines relating to the minimum credit score that they are willing to accept depending on their risk tolerance. But in most cases, a home loan gets approved if your score is more than 700.

A high CIBIL score is an indication that you have serviced your past obligations diligently. It is a reliable measure of your future repayment behaviour and hence it improves your chances of getting a loan. A low score that does not satisfy the minimum limit set by the bank may lead to a denial. So if you wish to avoid any chances of rejection, you must pay attention to your CIBIL score and ensure that it stays above the 700 mark.

Your credit score not only affects the bank’s approval decisions, but it also determines the home loan interest rate that they will charge. Yes, banks in India are now planning to switch to risk based pricing, where they will charge a lower rate of interest from people with an exceptionally high CIBIL score. They believe that lending to an individual with a fairly high score will be a good investment as he won’t have problems in repaying the debt. Loans for low CIBIL score are available at a higher rate as lending to such individuals is considered as a riskier investment. Bank of Baroda has already announced that it has linked home loan interest rates with the CIBIL rating. So if you maintain discipline in paying your existing loans, your credit score will improve, and you will have to pay a lower EMI on your new loan.

If you are planning to buy your house anytime soon, checking your credit score should be your top priority. Do it at least 6 months prior to filing a home loan application, as it will not only help you gauge your financial standing but also give you enough time to work on your score if it isn’t in a good shape. If may be extremely devastating if you find out that your credit rating is too low to qualify for a home loan. Do not worry, all is not lost. Many peer to peer lending options are available online where you can get loans for low CIBIL score. But these loans will be available at a higher cost. A difference of even half a percentage of home loan interest rate can cost you thousands of more rupees over the life of the loan. It is in your best interest to work on your CIBIL score and improve it so that you can get approved for home loans at attractive rate of interest.

Make sure you make timely repayment of your instalment debts from now on as late payments pull down your score. Get a secured credit card and use it for small purchases every month. Timely payments of the credit card bill will help in establishing a good track record of the payments made that would be reflected in your report. Do not utilize more than 30% of the available credit limit. Check your free credit report every year to ensure that you are moving in the right direction. Also scrutinize your report to make sure it does not have any errors. Sometimes errors on the part of the credit bureau are also responsible for a low CIBIL score. So if you find any discrepancies you can raise a dispute with CIBIL.

Raising your CIBIL score will not happen overnight. But if you focus on taking positive actions you can slowly move up the ladder and make your CIBIL score ready for an easy approval of home loan at attractive interest rates.

6 Important Things You Should Know Before Taking a Home Loan

Home loans have become inseparable parts of home deals today. For an individual the decision to buy a dream home depends on their eligibility to get a loan. Probably this is why people begin to plan for home loans much in advance.

To understand how home loans work, you should first understand that these are basic loans which all the popular banks offer for long run. Home loan is nothing but a monetary assistance offered by a bank or financial institutions to make a purchase of residential property. The purchased home usually stands as security until you pay back the entire loan amount with interest. Thus loans are secured loans and banks are always keen to offer home loans.

The basic requirement to get a home loan may differ from lender to lender. Usually to get a loan, you should have a fixed, dependable source of income. You may be employed and self-employed, it doesn’t hurt your stakes. You need to have a good financial history and banking transactions for at least 6 months. The age should be between 21 and 60 years of age for employed or between 21 and 65 years, for self-employed.

Let’s outline 6 important things you should know before taking a home loan.

How much you want to borrow?
First things first you must clearly know how much you want to draw from the bank. These days you can avail home loan up to 90% value of the property, however decision to borrow the amount should not be dependent on bank’s will only. The banks assess the loan amount by calculating your net income, i.e after deducting your current credit outstanding and day to day expenses from your income. Based on the net income they would calculate how much you could spare as loan EMI. As a rule of thumb, banks generally limit the loan installments at around 40 to 50% of the borrower’s salary.

Type of loan
There are two types of these loans based on the interest rate. One is fixed rate of interest and the other is floating rate of interest. When A person is taking fixed rate loan,it  usually charges a fixed rate across the whole tenure. Interest is constant for the full period of the loan. On the other hand, the interest on the floating rate changes with the market rates. For example, when the market rates rise, the interest rate on the these loan goes up and when the market rates fall the interest rate on the home loan goes down. The fixed rate home loans are generally higher than current floating rates.

Tenure of loan
Major lenders offers maximum 30 year tenure for home loans. EMI is lower when the tenure is longer. Being fat loans, people with limited resources opt for 25 to 30 year loan. However, it is advisable to take a loan for the shortest tenure if you can afford. Suppose, in a 10-year loan tenure, the interest paid is 57% of the borrowed amount. This can go up to 128% if the tenure is 20 years. So, always keep the tenure as short as possible.

Tax benefits
You can avail tax benefits with this loans and you should clearly know about the benefits in advance. You and the co applier both can get income tax deduction up to 2 lakhs for home interest. The property however need to be self-occupied to avail the benefits.

Loan defaulter
All those who have not repaid their loans will find their names enlisted in Loan Defaulter List. The default can happen when you do not pay EMI. So, the borrower must be careful about the add-on charges and penalties. It is not just the interest that you pay, there can be additional charges such as administrative and service charges or processing fees. Once blacklisted as a loan defaulter, it would take many years to restore the credit score.

Prepayment penalty
Before you sign the deal ask the lender if there is any prepayment charges. By prepaying the loan you close the account earlier than anticipated and reduce the cost of loan. Many banks charge a penalty on prepayment of home loan, so if you intent to prepay, look for the loan that allows you to prepay without a charge.
Following these six points you could be rest assured of finding a good home loan deal.