A home is an expensive purchase altogether. Many times, people do not have the required finances to buy a home. As a result, they opt for a home loan to gain financial support to buy a home. When you are preparing to buy a home with a home loan, it is best to do your research and pick the best home loans with competitive interest rates. When it comes to getting the best interest rate, there is something that is more important than saving up enough for your down payment. It is wise to keep an eye on your credit score. It plays an important role in the interest rate of your home loan. In this article, we will dive deep into how your credit score can affect your home loan interest rate and how you can improve your score.
What Is A Credit Score?
A credit score is a 3-digit number that is a record of all your financial habits. It is a measure of your creditworthiness. This credit score ranges between 300 and 900. They are calculated by the credit bureaus in India after considering several factors such as repayment history, debt, credit inquiries, and others. It is usually recommended to have a credit score of or above 750. Having a higher credit score is an indication that you are a financially responsible individual with high creditworthiness. So, if your credit score is below the recommended range, it is best that you improve your credit score before applying for any type of loan.
Why Is Your Credit Score Important?
Your credit score is crucial as it helps determine the interest rate at which credit is offered to you. It also determines the interest that will be charged on your home loan. Many insurers also consider your credit score to determine the premium that has to be charged on your insurance policies. So, it is important to have a good credit score in order to avoid paying high interest rates. You can leverage a good credit score into a great deal on your home loan.
How Does Your Credit Score Impact Your Home Loan Interest Rate?
From the perspective of the bank or the lending institution, they would be lending you money for a certain period of time. In case you have a poor credit score, this would mean that you have had a history of poor financial habits which includes repayment of loans. In such a scenario, the lenders are at a higher risk. As a result, they charge a higher rate of interest to make sure that they collect a reasonable amount of money over a shorter period of time. In contrast, if you have a good credit score, lenders would be willing to reduce the interest rate due to your good repayment habits, which thereby translates to a lesser risk. A small decrease in your interest rate can lead to a large sum over the course of the home loan, considering the timelines for home loans which are usually longer.
How To Improve Your Credit Score?
If you don’t have a good credit score, you can improve your score by following a few practices on a regular basis. Here are 3 tips that can help you boost your credit score.
1. Be Timely With Your Credit Dues
Be it your credit card bills or a loan, it is best to repay your dues on time. Late payments can negatively affect your credit score. So, always remember to make your payments on time.
2. Settle Your Late Bills
Having unattended dues can hurt your credit score. So, make sure that you have a tab of all of your pending dues and settle them at the earliest.
3. Check Your Credit Report
In some cases, it could so happen that your credit report has errors. Check your credit reports to ensure that it is error-free.
When it comes to the interest rate of a home loan, credit score is an important aspect. Having a good credit score can help you get a lower interest rate, thereby making your repayments more affordable. Make sure that you maintain a good credit score before applying for a home loan.