Home loan interest rates are rising, and you must be wondering how you can get the best deals despite this continuous rise in repo rates by the Reserve Bank of India (RBI). If you are planning to take a home loan and don’t know how to check your eligibility, then the first thing you must check is your credit score.
Credit score is a three-digit number between 300 and 900, calculated by credit bureaus. A good credit score shows you can handle your debts well and repay them on time. You can also avail 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 given in your credit report, which summarises your past payments, defaults, and loan liabilities.
If your credit score is good, you can have multiple benefits. One of the biggest benefits of having a good credit score is that you can avail a home loan at a lower interest rate. Also, your creditworthiness will always be higher compared to those with lower credit scores. If your credit score is 750 and more, your chances of getting a home loan increase significantly, and you can even negotiate for lower interest rates with the 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 is why they prefer credit score as one of the important criteria to filter loan applications. A good credit score is good but maintaining the same is highly important. If your credit score changes, it may change your interest rate even during the loan period.
All lenders have their own defined range for the credit score 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 an interest of 7% per annum, and if the amount is above Rs 1 crore, the same bank may charge you interest of 7.50% pa. Hence, the home loan interest rate may vary as per the amount you borrow and your credit score.
You can build a good credit score by following a few simple steps. Open accounts (like a credit card) that report to the credit bureaus. Maintain low balances 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 takes place 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 depending on your financial profile, according to Bankbazaar.
Some banks offer pre-approved home loans to borrowers with good credit scores and clean repayment history. You should maintain a good credit score 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 based on the credit score in the table below. Get to know your credit score and compare which lender can offer you the best home loan interest rates based on your credit score.
Compiled by Bankbazaar.com