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17-Jul-2023 | Credit Score
When it comes to obtaining a home loan, your credit score plays a crucial role. A higher credit score not only speeds up your home application process but also increases your chances of home loan approval. Improving your credit score is a proactive step towards ensuring a smooth and affordable home loan experience. In this article, we will discuss seven effective strategies that can help you to increase your credit score.
Start by obtaining a copy of your credit report from credit bureaus. Review it thoroughly, checking for any errors or discrepancies that might be negatively impacting your score. Look for late payments, outstanding debts, or any incorrect information. If you find any discrepancies, dispute them and ensure they are corrected promptly. This can help you in checking your credit score and understanding your creditworthiness.
One of the most significant factors affecting your credit score is your payment history. Make it a priority to pay your bills and home loan EMIs on time. Late payments can significantly impact your credit score. Set up payment reminders, automate payments, or create a budget to ensure you never miss a due date. Consistent and timely payments will positively influence your creditworthiness and contribute to maintaining a good credit score.
High credit card balances can negatively impact your credit score. Aim to keep your credit card utilisation below 30% of the available credit limit. If possible, pay off your credit card balances in full each month to avoid accruing high-interest charges. Additionally, consider paying off any outstanding debts or loans to reduce your overall debt-to-income ratio. This can help in improving your credit score, which is vital for a home loan application.
Applying for multiple lines of credit within a short period can be viewed as a sign of financial instability and may lower your credit score. Each time you apply for credit, it triggers a hard inquiry on your credit report. Minimise the number of new credit applications and only apply for credit when necessary. Be strategic and selective in your credit applications to maintain a positive credit score, which is important for a home loan.
Having a healthy mix of credit can positively impact your credit score. Lenders prefer to see responsible management of different types of credit, such as credit cards, loans, or a mortgage. If you only have credit cards, consider diversifying your credit by adding a small installment loan or a secured credit card. However, ensure that you can manage the additional credit responsibly. A diverse credit profile can positively influence your home loan eligibility.
The length of your credit history also influences your credit score. Avoid closing old credit card accounts, especially if they have a positive payment history. The longer your credit history, the better your credit score. Keep old accounts open and active, as they contribute positively to your creditworthiness, which is important for securing a home loan.
If you are struggling to improve your credit score, consider seeking guidance from a financial advisor. They can help you develop a personalised plan to address your specific credit challenges and provide valuable insights to enhance your creditworthiness. A financial advisor can also help you in understanding the documents required for a home loan application easily.
Improving your credit score is an essential step towards availing a home loan. By understanding your credit report, making timely payments, reducing credit card usage, limiting new credit applications, maintaining a mix of credit, lengthening your credit history, and seeking professional advice when needed, you can enhance your creditworthiness over time. A higher credit score helps increase your chances of home loan approval. Take proactive steps today to improve your credit score and pave the way for a better home loan experience with the help of an online free EMI calculator. Don't forget to check your credit score regularly with a free credit score check online to track your progress.
