A guide on your credit score

The importance of your credit score

Credit Score or the CIR (Credit Information Report) is a three-digit number that determines your credit record or a summary of your credit history. It spans from a score of 300-900. The higher your range, the better is your credit score. Financial Institutions are generally interested in giving credit if your score is above 750.

In India, there are four main credit bureaus – the Credit Information Bureau (India) Limited or CIBIL, Equifax, Experian and CRIF High Mark. CIBIL was the first credit bureau to be established in India.

Why is a credit score important?

A credit score is a number that justifies an individual’s credit worthiness. A good credit score helps you get loans at a lower rate of interest, contrary to a poor credit score loans that act as a hindrance in getting credit. The rate of interest when you apply for a loan with a lower credit score turns out to be very high. 

Why should one have a good credit score? 

A good credit score ranges from 700 – 900. One requires a healthy credit score for many reasons. One of the most important reasons is that it ensures a better chance of approval of loans. When you have a good credit score, the banks will offer you a lucrative deal which could be lower rates of interest, higher loan amount, longer payment windows and probably breezy paperwork. With an impressive credit score, a bank can service approx. 80% of the actual property cost on home loans.

Why is a credit score important for me?

When a friend asks you to loan him some money it’s actually the trust, he has put in you about his repayment track that will help you decide whether you will give him the money or not. If you are applying for a loan of any sort, you cannot ignore the credit score factor. It is the CIR that will determine if the financial institution that you have approached, will eventually lend you the money or not. It is a registered organization that does the task which guarantors used to do in unorganized financial sectors 20 years ago. 

When it comes to a home loan, your credit score plays a pivotal role. Without a good credit score record, it’s almost impossible to avail of a home loan from a bank. If you have your credit score right, it will even get you a good home loan insurance at a surprisingly low premium.

Also, take note that your credit card application will get disapproved on the basis of a poor score.

How is a credit score calculated?

A very important element for determining your credit score is your very own behavior or your own track record toward repayment of loans. Based on information in the accounts and inquiry section of Credit Information Report you will get your score. The score is calculated on the following factors:

  • Credit utilization – How much credit are you using at the point?
  • Defaulting and delinquency – How much have you defaulted in amount and by the number of days?
  • Trade attribute – Meaning how old are the borrower’s credit and whether he has a mixed bag of credit.

How can I check my credit score and where? 

Here is how to get a free credit report 

Step 1: Go to the website of CIBIL/ CRIF/ Experian or Equifax

Step 2: Fill out the form that requires some of your necessary information such as your name, your contact number, email address, etc.

Step 3: Fill out the additional details about you including your Pan number. Make sure to enter your Pan details correctly.

Step 4: Answer all the questions about your loans and credit cards appropriately, based on which your credit score will be calculated, and your completed credit report will be generated.

What determines your credit record and the factors that affect it?

Listed below are some factors that can affect your credit score negatively. You need to work on these so that you can make your record better in the future.

  • Credit repayment history
  • High credit utilization ratio
  • Your outstanding debt
  • Multiple loans or credit card application
  • Always pay the minimum amount due
  • Not having a credit mix
  • Closing old credit card accounts

Is it a long term or a short-term phenomenon?

The credit score is a very large and intrinsic part of the loan industry and it is here to stay. A good score is like a strong backbone helping you stand tall in case of seeking loans.

A bad score is like a bad reputation that will require a long period for undoing. There is a concept known as “settled status” whereby the lender and borrower reach a term for the settlement of the outstanding which he is unable to pay. In this scenario, he may require a ‘no objection certificate’ to avail of any loans in the future.

How can I improve it? 

If for some reason you have not been able to maintain a good score you may want to take a look at how you can improve it.

  • Be disciplined with your loan repayment. Every installment counts.
  • Don’t overstretch your credit limits.
  • Always have a mixed credit in your name.
  • Rectify the mistakes in your credit reports.

Getting credit and using it in an informed manner also helps to improve your credit score.

Like most banks, NBFC will also require your credit report. Though they may not be very stringent on a high score, they may still have their own standard of assessing your credit history and mostly they will take a feeder from your credit score. 

Hence it is for your own benefit to have a clean record as the smallest of the financial organization will rely on a credit report for issuing a credit of any amount to you. 

Housing loans available in India

Types of housing loans that can be availed from banks and NBFCs

So finally, you got the big career break were working diligently towards and now you are financially capable of buying your own home. Good news is, in India there are so many institutions that are eager to fund your home via housing loans. Demand for home loans have risen twice over the last twenty-five years with the new age of nuclear family that India has stepped into.

While speaking about buying a home or home related requirements, housing loans are the most viable options as they are largely flexible, can be customized to a particular degree and is also affordable considering the long tenures you commit yourself to.

Banks and NBFC’s not only offer easy housing loans, there are loans available for many different purposes. Let’s take a look at all the different loans available and how one can take advantage of them:

1. Home loan

This is the simplest and most obvious choice when buying a home. You can even take housing loans if you own a piece of property and want to construct a home with it. The interest rates are generally affordable and these are long term meaning your income won’t take a big hit.

2. Home improvement loans

A home improvement loan comes handy when you want to renovate or repair your existing house, and either you don’t have the needed funds, or you don’t want to disrupt your savings. This loan comes as a blessing in disguise as it is mostly an unsecured loan, meaning you do not have to mortgage your property to avail this housing loan.

3. Loans for house construction

Usually taken for the purpose of either building your own home or any other property. These loans are generally sleeked by builders. Since the house construction loans are viewed as risky, the interest rates are high and the tenure short. Mostly just a year. The house construction loan may also be disbursed in phases. Here the terms of the loan are mostly decided by the lender.

4. NRI home loans

If you are a Non-Resident Indian and are planning to purchase a property in your home land, the banks and NBFCs will welcome you on a red carpet. Well not literally. Housing loans are the easiest to avail in terms of paperwork as you can apply for the loan online and get all the services from the comfort of your home. It is one of the most flexible housing loans where the tenure can even be extended up to 30 years, hassle free.

5. Bridge loans

Bridge loans are housing loans that involve bridging over from one phase to another. It means, it’s a loan you take to buy a new house until you can arrange your finance by selling the old or the existing one. It’s a short term secured loan where you either secure your existing home or hypothecate the new one. These loans are very popular in the real estate market, that help you cover the gap. What you should know is that the interest rate will be at least 1% higher than a general housing loan.

6. Home extension loans

This loan feature comes handy when you want to make structural changes to your existing property. When family extends you need to extend your space too.

Keep in mind that you will not be sanctioned a huge quantum of money for the extension purpose. The tenure and interest rates are almost alike to that of a regular housing loan. A very big plus point is you are still eligible for this loan while you are servicing a home buying loan.

7. Composite home loans

As the name suggests it’s a housing loan where you are clubbing two loans together, that is a loan for buying a plot and a loan for building a house on it. This is a common loan and the amount is decided upon the fixed obligation income ratio. Basically, you will get a lump sum amount that will be disbursed as and how the entire process advances.

This is a short-term loan where the creditor is expected to honor the loan amount back in approx. 5 years.

8. Home loan balance transfer

Sometimes it may so happen that the bank or an NBFC you have approached for a housing loan may increase the interest rates as per the RBI discretion. You may find yourself unable to service the loan. Or sometimes you are not happy with the facilities provided by your lender. In such a case you can request transfer of the balance to a financial institution of your liking. You can also avail a bigger quantum to the existing loan from the new bank. Make sure you transfer your case to a reputed institution.

9. Plot loans

A plot loan is for funding the purchase of a piece of land with the intention of building a house on it. You are entitled to certain tax redemptions once you actually build a house.

10. Stamp duty loans

When buying a house, you should also take into account the stamp duty and registration charges. With the real estate price sky rocketing it is obvious these amounts are enormous as well and may very much need a loan too. Hence the stamp duty loans, where the builder will mostly have a tie up with a bank whom you can approach. This will only make the process of acquiring the loan easy as against going to you own bank where you may have to do a lot of paper work.

Whatever your reason for seeking a housing loan, your best preparation is to thoroughly go through those reasons that may become a road block between you and your dream home.

We’d love to help you manage your down payment with a program that we have curated especially for first time home buyers. Click to check it out!

namaste world

Namaste world!

Hey, thanks for dropping by!

The HomeCapital blog is meant for those of us who dream of owning our first home and stumble through the process of meeting that first milestone.

Through this blog, we hope to help the millions of people out there who are making this journey. HomeCapital is India’s First Home Down payment Program.

In the days, we hope to publish more information on how should a home buyer go about purchasing a new house. Stay tuned!