Living in own house is a dream for one and all. And today realization of this dream has become so accessible that one can actually start planning to own one as soon as one secures a job. This accessibility comes through the availability of loans for buying the house. So if you are planning to buy a house, you must evaluate your credit score and try to improve it. Improvement of the score will not only help you secure loan faster but can also facilitate a lower rate of interest.
Following are the must do for you to be able to work on your credit score.
Check your credit report
To begin with, obtain your credit report. Your credit score levels play a highly important role in you being able to access loans. A 750 score is considered to be a good score. In case you have a lower score you certainly need to work on it. And in case you already have a credit score above 750 then you can work to improve it further. The score range is up to 900 and a score of 800 and above would be excellent.
With a high score, you will be able to secure a loan from the lender of your choice. For example, you wish to apply for HDFC home loan; you would be able to get it with a good credit score.
Report errors and have these removed
Errors are rampant on credit reports. It is expected that 1 of 4 reports have errors. When you obtain your report, do check out for errors. These can range from error in your personal details like email, contact details to a loan or credit card that you have never applied for reflecting in the report. Do check out for errors like your payments not reflecting under the account or an account not reflecting at all.
In case you find an error, do report it to the concerned bank and bureau immediately so as the same gets resolved. An error can grossly impact your score so do follow up to ensure the issue is addressed. You might have to look out for loans for bad credit if these issues remain unresolved.
Reduce debt to income ratio
Your debt to income ratio is an important aspect in the availability of loan. The debt burden ratio has a simple formula. It gets restricted to 50% of your net income. Meaning, your total obligations on EMIs, including the EMI on the new home loan that you wish to apply, cannot be more than 50% of your net take home. You may be holding multiple loans and credit cards and you would may be required to close the loans or cards to ensure that the debt burden ratio fits the formula.
Make timely payment on all accounts
Timely payments on all your loans and credit cards are important at all times. But when you are planning to apply for a home loan, it is critically important that none of the EMIs is missed or paid with a lag. So should be the case with your credit card payments as well. Since credit card payments unlike a loan installment do not hit the account automatically, people miss out on the due date. Ensure that you put a reminder to pay on and before the due date.
Limit credit card outstanding
If you are an active user of credit cards and utilize the limit to the fullest, please make sure that this is not the case going forward. A higher percentage utilization of credit card limit will only have a negative impact on the credit score. The credit experts say that the card should not be utilized beyond 30% of the credit limit.
Do not take a new debt
Do not apply for a new loan since not only will it impact your eligibility for a home loan, the hard enquiries also impact the score. Hold on to all other credits till the time you are able to secure a home loan.
Do not close old credit cards
While it was suggested above that a few accounts might be required to close, do not close your old credit cards. Length of credit history is one of the major factors impacting your credit score. Keep your old credit cards alive and use them only up to 30% of the assigned limit.
These are few of the simple ways to improve the credit score before applying for home loan
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