Home loan interest rates are rising and you must be wondering how you can get the best deals despite this continuous hike in repo rates by the Reserve Bank of India (RBI). If you’re considering taking out a home loan and aren’t sure how to check your eligibility, the first thing you need to check is your credit score.
Credit score is a three-digit number between 300 and 900, calculated by credit bureaus. A good credit rating shows that you can manage your debts well and pay them off on time. You can also benefit from lucrative offers on home loan interest rates and credit cards. When you first apply for a home loan, your lender will ask you about your income and check your credit score. Your credit score is shown on your credit report, which summarizes your past payments, defaults, and loan debts.
If your credit score is good, you can benefit from several advantages. One of the biggest benefits of having a good credit rating is that you can qualify for a home loan at a lower interest rate. Also, your creditworthiness will always be higher than that of people with lower credit scores. If your credit score is 750 and above, your chances of getting a home loan increase dramatically, and you can even negotiate lower interest rates with lenders.
A person with a high credit score means there is less risk of the loan becoming a non-performing asset (NPA) for the lender; that’s why they prefer credit rating as one of the important criteria to screen loan applications. A good credit score is good, but maintaining it is very important. If your credit score changes, it can change your interest rate even during the term of the loan.
All lenders have their own set range for credit rating within which the interest rate varies. For example, if your credit score is above 800 and your home loan amount is below Rs 30 lakh, the bank may charge you 7% interest per annum, and if the amount is above Rs 1 crore , the same bank may charge you interest of 7.50% per annum. Therefore, the home loan interest rate can vary depending on the amount you borrow and your credit score.
You can establish a good credit score by following a few simple steps. Open accounts (like a credit card) that report to credit bureaus. Keep balances low and pay your bills on time. Lenders often review your credit score once a year and may adjust the interest rate accordingly. Often this change occurs if your credit score drops. If your credit score has increased, you can switch your loan to a new lender who may offer you lower interest rates based on your financial profile, according to Bankbazaar.
Some banks offer pre-approved home loans to borrowers with good credit and a clean repayment history. You must maintain a good credit rating and avoid borrowing beyond your repayment capacity. Some banks offer home loans at lower interest rates to borrowers based on their credit scores.
You can compare the lowest interest rates on home loans by credit score in the table below. Know your credit score and compare which lender can offer you the best interest rates for a home loan based on your credit score.
Compiled by Bankbazaar.com