A home loan or credit against property is a gotten advance wherein the borrower promises their private/business property as insurance to the bank.
It is an amazing choice that proves to be useful when you are in desperate need of money for meeting crises, like financing your youngster’s schooling, marriage costs, and so forth on account of non-settlement, the bank has all the options to claim your property held as security.
Generally, the mortgage loan amount is relatively high and forms the biggest part of the debt you’ll carry. So, these loans can impact your CIBIL score extensively.
CIBIL score is a 3-digit numeric score ranging from 300 to 900. The higher the score, the better. It plays a critical role while evaluating your loan application.
Though not the only deciding factor, yet a significant one in determining your creditworthiness. If the score is low, you might even end up getting your application rejected. Hence, it’s crucial to improve your CIBIL score and keep it healthy.
Let’s take a look at five ways a mortgage loan can impact your CIBIL score.
1. Clear all your debts on time
Yes, it is as simple as that. Do not default on mortgage loan EMIs. Every time your EMI goes on time, it adds up to your CIBIL score. Since payment history contributes to 30% of your CIBIL score, it can tremendously improve your creditworthiness.
2. Apply for loans wisely
Whenever you submit a mortgage loan application, the lender places an inquiry into the Credit Bureau to pull out your score. A high number of inquiries can affect your score negatively, as with every investigation, your score drops. A low score means you will have to settle for a more expensive loan by paying a high interest rate. So, avoid applying for a mortgage loan multiple times with different lenders.
3. Secured loan balances the other unsecured debts in your account
Though the number of loans you have applied for matters while computing your CIBIL score, the types of loans are equally significant.
A high CIBIL Score can be expected when you have a mix of secured and unsecured loans in your account. Hence, a mortgage loan can balance the other personal loans or credit cards you may already have.
4. Reduce your credit utilization ratio
This is crucial for borrowers who already have a credit card. 20% of your CIBIL score is devoted to factors, including the credit utilization ratio.
So, use your credits wisely. You are ideally expected not to exceed 30% of your credit limit. Higher ratios can harm your score as it exposes you as a high-risk borrower to lenders.
Availing a mortgage loan can not only consolidate debt but also reduce the credit utilization ratio, thus improving your credit score quickly.
5. Be careful of signing as a guarantor
Never stand as a guarantor for the person you don’t trust because that can impact your CIBIL score. This is because becoming a guarantor holds you equally responsible for the debt to be paid back to the lender.
To sum it up
Mortgage loans do impact your score in many ways. While it’s not so hard to maintain a decent CIBIL Score, just keep these things in mind, and you are good to go.