Imagine that you are a prospective buyer and you’ve narrowed down the lists of a few desirable apartments in kochi, apartments in trivandrum and apartments in thrissur. Or that you have your eyes fixed upon a house for sale in kottayam or any of such houses for sale signboard in your most preferred locale – what will be your next move?
It will be to run a check on your finances and to obtain your credit report.
Now, you want to buy a house but lacks liquidity and is aiming for a home loan. For this, you should assess your ability to get a home loan, beforehand by checking your credit score and credit report.
Credit score and a Credit report – What are they?
Under the Credit Information Companies Regulation Act of Indian Government, there are four CIBs who maintain the records of all the people who have borrowed from the financial system- based on the details provided by the financial institutions. Data reported by the financial institutions are collated by the CIBs and made available in the form of a report and a score. This is known as a credit report and credit score, respectively.
A credit report is a record of all your financial activities. It holds information about the accounts you have at present or have had in the past, details on your credit cards, personal loans, student loans, mortgages etc. They also include details on late payments, bankruptcy filings, foreclosures, debt collections etc – if any.
A credit score is a three-digit number based on the information compiled within your credit report. The information on the credit report is made run through a computerized algorithm that converts it into a score. The higher the score, the better your chances are of getting a home loan.
Why are they important?
If you’ve applied for a home loan, the lender will check your credit report to determine whether to sanction the loan or not. The credit report and credit scores determine your eligibility for the loan.
The higher your credit score, the better your chances are as lenders will see you as a low-risk investment or in much-simplified terms as someone who can pay their mortgage on time. This will get you low-interest rates and other costs on your loan.
On the other hand, if your credit score is low, the lenders see you as a risky investment. And by chance, if your application gets through, you will be charged a higher interest rate for the loan.
Why obtain your credit report in advance?
Your home loan can get rejected due to your bad credit score and history. A bad credit history/score may also come from the carelessness from the financial institutions, due to their failure in reporting your financial transactions or from the part of the CIBs in collating the data received. So, if you become ineligible for a home loan, due to bad credit history or low credit score, your plans to buy your dream home might hit a pause. In such cases, if you have already paid the token or an advance money for the home to the seller or the builder, chances are that you may end up losing the earnest money paid. Hence, it is advisable to obtain your credit report in advance, to ensure that there are no erroneous transactions reflecting in your profile. If there are any, you can take corrective measures to get it corrected, before the lender accesses your credit report. As per the RBI mandate, all the CIBs are required to provide the credit score and credit report, free of cost, once in a year.
If you want to apply for a home loan and your credit score is not where you want it to be, do not worry. There are ways to improve it over time. Lowering your credit card outstanding balance, paying off your debts and bills on time, starting a new account by maintaining a good standing etc can help you increase your credit scores. And once you are through, you can always get home loans at best interest rates from trusted financial sources. And when you do, make sure that you partner with the right builders to fulfil your dream. That’s why we suggest you associate with Kalyan Developers, best builders in kerala, so that you can have a peaceful living, after all.