We are all familiar with the term credit score. It is a three-digit number in most cases that indicates what banks and financial institutions call creditworthiness. This term means your entire repayment history for credit and bills, along with your management of credit, your credit profile and so on. The higher your credit score, the better your chances of getting your loan approved.
A credit score (given by credit bureaus like CIBIL, Experian, and others) is usually a number between 300-900, indicating the creditworthiness of any prospective borrower/customer. A higher score enhances the chances of securing loans from lender or financial institutions. The credit score is based upon several factors including the credit history of the applicant, his/her history of repayment, debt level, type of debt (unsecured/secured) and number of accounts which are open along with the credit enquiries. These scores are used by financial institutions for determining the possibilities of individuals repaying their loans on time.
Credit scores are key determiners in the approval/rejection of loan applications at lending/financial institutions. One of the vital metrics for calculating this score is also utilization of credit or the percentage of credit available for an individual that he/she is using at present.
A credit score is indispensable for all borrowers looking to buy their own homes or invest in real estate. Loans for buying residential or commercial property or even plots require approvals from financial institutions. At the same time, it is here that credit scores become necessary for the approval of the same.
Those with high credit scores of 750 or above have a higher chance of getting their home loans sanctioned at better rates of interest. A lower credit score may also lead to a higher interest rate for borrowers at times. Hence, a good credit score is a must for getting a loan to purchase real estate. The same applies for any individual/smaller developer looking to raise funding to complete a project. His/her personal credit history and score may be scrutinized by the lender as well. These are some factors which ensure a healthy score:
1. Avoiding excessive usage of credit or maxing out credit limits.
2. A higher proportion of secured debt to unsecured debt in the portfolio.
3. Timely repayment of loans and credit card debts without defaults or missing dates.
4. Proper management of credit over the years, including closing out loans within their due periods.
5. No excessive loan applications or credit enquiries that indicate a hungry borrower.
