How to Improve Credit Score before Applying for Home Loan

While applying for Home loan to buy a new house, it is very important to improve credit score so that it is easy for you to get your home loan approved. We will discuss 4 important ways on How to Improve Credit Score which will ultimately help you to get your home loan approved.

Some of the ways to improve credit score include paying off your existing debt or loans, check your credit reports for any errors and fix them in case of any discrepancies, increase your credit limit, pay EMI and Credit card bills on time. These steps will eventually help you to improve the credit card score.

Table of Contents

1. Pay off your existing Debt
2. Check your Credit Reports
3. Increase Credit Limit
4. Pay EMI and Credit Card Bills on Time
5. Get Negative Entries removed from Credit Report
Conclusion
Frequently Asked Questions

Let us understand all these steps in detail.

1. Pay off your existing Debt

In case you have any existing debt such as bike loan, car loan or any other loan with bank or financial institution, it is very important that you pay off this debt or loan so that you don’t have any other EMIs to be paid before applying for home loan.

While applying for home loan, your existing EMIs will be checked and if you clear other debts, it will be easy for your home loan to get approved.

Also, it would be easy for you to pay the home loan EMI once you have all the other debt cleared from your side. Banks mostly check your ability to pay back their money when you take home loan, based on your existing loans and income you generate every month.

2. Check your Credit Reports

Before applying for home loan, it’s a good idea to check the credit reports, which can provide you the required information. Credit report includes information like your CIBIL score, what pending debts you have for how long, whether all the previous debts are cleared or not, etc.

This will help you to identify any human-like errors that are present in the report which you should rectify in order to avoid rejection of your home loan.

So checking credit reports regularly helps you to rectify the errors it can have.

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3. Increase Credit Limit

Another step to improve credit score is to increase the credit limit. This will help you to reduce the percentage of credit you take on your credit card.

So let’s say your credit card bills are somewhere around Rs. 20,000 every month and you currently have Rs. 2 Lakh limit on your credit card. Which means you are borrowing around 10% of the maximum limit you have on regular basis.

If you increase the credit car limit to Rs. 3 lakh, but keep your expenses same, that is up to Rs. 20,000, than your borrowing percentage has now reduced to 6.66%. This reduction of borrowing percentage is good for your credit score.

It simply means, you are borrowing less percentage of your credit limit, and at the same time, paying the bills in full as a responsible person in finances. Banks and financial institutions like this!

They want you to pay the bills on time and they will be ready to approve your loan for a higher amount whenever you might need it in future. So try to increase the credit limit whenever possible. You can do so via your banks net banking section if you are eligible for credit card limit enhancement.

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4. Pay EMI and Credit Card Bills on Time

This brings us to very important tip to improve your credit limit – that is to pay all your EMI and credit card bills on time. While you use the credit card for your monthly expenses or to buy new gadget, it is very important that you pay the credit card bill before last date, and that too in full.

Don’t delay the payments and also don’t pay the bill partially. Paying partial amounts might decrease the credit score which is not good to apply for home loans.

5. Get Negative Entries removed from Credit Report

While going through the credit report, if you find any negative entries, which you have already paid, you should get it rectified as it might decrease the credit score.

The entries in your report that represent borrowings which is already paid by you in full will negatively impact the credit score, hence such errors must be solved before applying for home loan.

That is why it is important to check the credit report regularly to check for errors.

Conclusion

So these are some of the ways on How to Improve Credit Score in India before applying for home loan:

Pay off your existing Debt
Check your Credit Reports
Increase Credit Limit
Pay EMI and Credit Card Bills on Time
Get Negative Entries removed from Credit Report

Banks and financial institutions check your credit score before approving your home loan, so you should be following above tips to get your score in good range to avoid rejection of your home loan.

Frequently Asked Questions

What is the fastest way to boost credit score?

Best way is to clear all your existing debts or loans and to pay them on time without any delays. While you are paying the credit card bills, you should pay the bills in full and avoid partial payments in order to keep the credit score in good range.

Is 700 a good credit score?

700 is a good credit score where as if you are able to take your score above 800 by using above tips mentioned, it will be excellent for your future approval of loans.

How to clear CIBIL history?

Getting NOC (No objection certificate) from banks after closure of existing loans or debt is one of the ways to clear the CIBIL history. Also it is a good idea to regularly check your credit report to solve any issues or incorrect entries.

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