Most of the people aren’t aware that their bad credit score directly affects the loan costs. It is extremely important to keep a check on your credit score so that in the future when you go to a lender to take a big loan, it won’t affect the cost you want. Your credit score is the primary eligibility factor based on which the lenders decide whether to lend you.
If you have a good credit score, the loan approval process will be smoother, and if you have a bad credit score, there will be complications in your loan approval process, starting with the type of home loan rates you get, not getting the desired loan amount, etc.
To help you understand the impact of credit score has on your home loan cost, we have designed this post. Keep on reading to make an informed decision.
Let’s get started.
Understanding Credit Score
A credit score is a number that ranges between 300 and 900. A credit score is computed by a rating agency called CIBIL (Credit Information Bureau Limited).
When you take a credit card or loan from a lending institution, the lender will send your repayment details to the credit bureau on a monthly basis.
CIBIL works on the information provided by the lender and compiles your credit history to determine your credit score. In order to maintain your credit score, you need to follow disciplined repayment practices. Disciplined repayments will help your credit to increase. And disciplined repayment means repaying the EMI on time when the bill generates every month.
So, when you apply for a loan, the lender evaluates your creditworthiness and credit history. If everything seems in place, the loan will be disbursed into your account quickly. Lenders consider a credit score of 750 or above to be ideal. If your credit score falls in this range, you are likely to get good loan offers.
This includes lucrative interest rates and flexible tenures. You can use the PNB housing finance EMI calculator for determining your eligibility for a home loan.
The Role of Credit Score in Manipulating the Loan Costs
Your credit score is directly linked to the loan interest rate. Lenders want borrowers to understand the seriousness and risks of lending money. Therefore, they evaluate the borrower’s credit history that includes the credit score. Your credit history contains all the information regarding your previous credit card payments and loans. In case, if you have repaid the loan full on time, the lender will see you as a responsible borrower.
Therefore, they will offer you loans at attractive interest rates. On the other hand, if you have defaulted the EMI for some reason, it will show the lender that you may not be serious about the loan. They fear that you won’t repay the entire loan. So, they will charge higher interest rates on loans.
You need to understand the seriousness of your credit score. And if it is below the recommended number, you need to work on improving it.