Low credit score: Major credit agencies of India- Cibil, CRIF HIGH MARK, Equifax and Experian Credit Scores are considered an important indication of financial trust. If a person’s score is around 500, he is kept in a ‘bad’ category, and in such a situation the meeting of home loans is not less than a big challenge.
According to the expert, a minimum of 650 score is required for home loan and ideally above 750. At this stage, the loan is not only easily found, but the conditions and interest rates are also very good.
What is a credit score?
The credit score is a number of three digits, which tells your credit qualification i.e. the ability to return borrowings. This score is prepared on the basis of your loan repayment habit, credit card payment, total amount of loan and other financial behavior.
In India, agencies like Cibil, Equifax, Experian and Crif High Mark make this score, which is usually between 300 and 900. The higher the credit score, the better it is.
Why do banks not give loans on low credit score?
Large banks like HDFC, ICICI and Axis typically prioritize the same applicants whose credit score is 650 or above. The weak score indicates that the borrower has not paid on time, his credit utilization ratio is very high or he has defaulted first. In such cases, banks either refuse to give loan or approve with very strict conditions.
What are the conditions in home loans on low score?
If your credit score is around 500, large financial institutions usually reject loan applications. If a bank or NBFC also yes to give loans, the conditions and interest rates could be quite high.
- More interest rate: While good scores can get loans at a rate of up to 8%, more than 10% can be charged from weak scores.
- More down payment: To reduce the risk, banks can ask for a large amount in advance.
- Additional Security: The condition of mortgageing from the applicant can be laid by a guarantor or real estate.
What options do the customer have?
According to experts, loan Against Property (LAP) can be a good option for customers with low credit scores. In this, a loan can be taken by mortgaging any of your existing property. However, this option is useful for those who already have assets. Also, the interest rate in it can range from 9.05% to 13.50%.
Best way to improve credit score
Experts believe that if your credit score has come down to around 500, then you should wait a little to take a home loan. Your first focus should be on improving credit score. For this you can execute some remedies:
- Pay all loans and credit cards on time.
- Use credit card limit less than 30%.
- Avoid applying for repeated loans or credit cards.
- Check your credit report regularly and correct mistakes.
If you pay EMI and credit cards regularly for a few months and do not take new debt, then the score can improve in 6–12 months.
Also read: Loan Default: What will happen if the installment of personal loan will be seen in the credit report?