Introduction
Buying a home is a monumental event in one’s life, especially in India, where owning property is often seen as a major life goal. However, the journey to home ownership involves several steps, with securing a home loan being a critical one. One key factor that impacts the approval of your home loan is credit scores. A good credit score not only increases your chances of loan approval, but also helps with obtaining better loan terms, lower interest rates, and higher loan amounts.
Read on to understand how you can improve your credit score before buying your home.
What is a Credit Score?
To begin with, let’s understand what a credit score is.
It’s a numerical value that rates your creditworthiness. In India, credit bureaus like CIBIL, Experian, and Equifax calculate this score based on your credit history. Scores typically range from 300 to 900. The higher the score, the more likely you are to get approval for loans and at better rates.
Steps to Improve Your Credit Score
1. Pay Bills on Time
The first and the most important step. Your payment history plays a crucial role in determining your credit score, and delays may result in a low credit score. So set up reminders or automate payments, to ensure that you never miss a due date. Consistently paying your bills on time will positively impact your credit score.
2. Reduce Your Debt
Use credit sparingly. High levels of debt may negatively affect your credit score. Repay one loan and then go for the next one. Aim to clear your outstanding debts, starting with your high-interest loans and credit cards. Reducing your debt burden will help improve your score over time.
3. Maintain a Healthy Credit Mix
The right combination of credit cards, personal loans, and home loans can help you build a healthy credit mix and positively impact your credit score. However, ensure that you manage them responsibly and conduct timely repayments.
4. Limit New Credit Applications
Apply for multiple new credit accounts within a limit. You don’t want to seem like a person who’s in constant need of credit. Also, too much debt in a short period can hurt your credit score. Only apply for new credit when necessary and repay it back as soon as possible.
5. Keep Credit Utilisation Low
Credit utilisation ratio is the percentage of credit you use to your credit limit. It’s typically advised to keep your credit utilisation rate at or below 30%.
Outside of reducing your spending, you can lower your utilisation rate if you limit big purchases using your credit card or ask your company for a credit limit increase.
6. Keep a Track of Your Credit Reports
Start by obtaining your credit reports from major credit bureaus like CIBIL and review it for any inaccuracies or discrepancies. If you find any errors, report them immediately to get them corrected.
7. Don’t Close Old Accounts
A long credit history can benefit your score. Instead of closing old credit accounts, keep them active by making small, manageable purchases and paying them off regularly.
Conclusion
Improving your credit score is not an overnight process and can take several months to see significant improvements. However by doing so before buying a home in India, you can secure better loan terms and interest rates. Follow these steps and maintain good credit habits to enhance your credit score and make your dream of owning a home a reality.
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