Bad credit score? Here’s how you can improve it

We present a few tips and tricks to improve your credit score before applying for a home loan.

It is easy enough to get a loan in today’s times, both for professional and personal reasons. But it is not as easy as just applying for a loan and getting the cheque from the lending institution – there is the matter of having a good ‘credit score’ in between.

A credit score is simply a number derived from the applicant’s personal credit history, basis the past credit, new credit taken recently, loans repaid and time taken to do so. This number is often the first thing that banks and financial institutions look for when examining an application for a loan. Most applicants do not know this – they simply assume that a large income and good repayment capacity will get them the loan approval.

The credit score thus helps lenders establish the applicant’s credit worthiness, i.e. if the applicant is a safe one or a risk for the lender. Basis the lender’s interpretation and understanding of the credit score, one’s loan application may be approved or rejected outright. If a ‘risky’ candidate’s application is approved, the rate of interest levied might be a higher one.

But the credit score is studied before you apply for a loan. Fortunately, there are ways to improve your credit score before you make your loan application. The following are a few ways:

• The lender will not ask for past loan history to first time applicants, but will examine current assets that the applicant will put up as collateral. Make sure these assets are of high quality.
• If you still have an unpaid loan, try to repay it as quickly as you can, over and above the EMIs you pay per month.
• Before making your application, use a home loan EMI calculator to find out how much your monthly outgo will be. If you already have some funds in reserve, apply only for the remainder.
• Lenders also study repayment patterns on credit cards. Clean out all credit card debt first.
• Your application might be rejected if you are found to be embroiled in cases of cheating and/or forgery, or if you have ever declared bankruptcy or there have been foreclosures against your name.