A home is one of the costliest assets that an individual owns during his/ her lifetime. Given the rate at which real estate prices have increased in the recent past, it is no more possible for commoners to purchase a home out of their own funds. Hence the need for a home loan.

More so, as a home loan is a big-ticket and a long-term commitment, lenders would like to have only the most prudent or trustworthy borrowers availing home loans. As you must be aware, creditworthiness of an individual is measured through a credit score. The credit score is assigned on the basis of your past credit behavior and is calculated on a scale of 300-900.

Buying a home is often a one-time investment and hence, an individual takes a lot of time and effort to search for a home that meets all their criteria and also their pocket. Our Credit Health Improvement experts advise that the moment you start searching for a house is the exact moment when you should start checking your credit score too. As a credit score needs time for improvement.

As your Credit Coach, CreditMantri likes to share with you some important tips that can be used by anyone who is looking to boost their credit score faster before applying for a home loan.

#Tip 1: Check your Credit Score and Get Your Credit Report

The first step that you need to take before applying for a home loan, or for that matter any kind of a loan is to check your credit score. Checking your credit score is extremely easy and can be done even at our website free of cost. Quite often, we have clients who check their score but are unaware if they have a good or bad score. It might be good for you to go through our guide on classification of credit score.

A home loan is a big-ticket loan and hence, it is important that you have a credit score above 750 at least.

If you discover that you have a low credit score, you must go ahead and get your credit report which gives you detailed breakup of how you have fared on different factors of your credit score.

#Tip 2: Get any errors in the Credit Report resolved at the Earliest

Errors in the credit report may be one of the many factors that may be responsible for a low credit score. Once you get your credit report, it may be worthwhile to check each and every factor thoroughly. Some of the main areas that you should pay attention here are:

  • If your name and PAN match as in official accounts

  • If all the credit accounts belong to you

  • If none of the closed credit accounts are shown as "Settled"

If you find errors in your report, you should approach the credit bureau and aim to clear off the errors at the earliest. Post which, your score may easily see a bump up.

Additional Reading: How to remove disputes from your credit report?

#Tip 3: Pay off Unsecured Debt

Credit Mix is one of the factors that affects your credit score. A credit mix takes into account the proportion of unsecured debt to secured debt in your credit portfolio. If your portfolio is skewed towards unsecured debt, it may be good to pay off some unsecured debt so that your credit mix balance is set right.

Too many unsecured loans like personal loans or credit cards not only gives a bad impression about your credit habits but is also heavier on your pocket considering the interest rate charged. If you are aiming to get a home loan in the near future, paying off an unsecured loan may help you booting your credit score.

# Tip 4: Do Not Slip Up On Any Repayment Schedule During The Interim

Prompt repayment on existing credit is one of the cornerstones of a good credit score. The implications of a missed EMI or credit card outstanding payment can be felt immediately on the credit score. Therefore, if you are expecting to avail a long-term and high denomination loan like a home loan, you cannot just afford to neglect your existing credit commitments.

If you are not sure of keeping up with your repayments, setting an auto debit for EMIs may be a great idea. Learn more about setting up of auto debit payments for your credit cards here.

#Tip 5: Refrain From Applying For Any New Credit Accounts

Hard inquiries are created when your lender inquires about your credit score and credit report with the credit bureaus. This happens only when you submit an application for credit. Increased number of hard inquiries do not bode well for your credit score as it shows that the applicant is not capable of managing his finances well. If you are looking to apply for a home loan in the short-term, it is good to refrain from applying for any credit unless it is absolutely essential.

#Tip 6: Do Not Stand As A Guarantor For Other's Loan Accounts

There may be times when you have stood guarantor to your friend's or a family member's loan account without really understanding the consequences. When you stand as a guarantor to someone else's loan, you are responsible to pay off the loan in case of a default by the primary applicant. It may also affect your credit score.  In other words, that loan may also be counted against your liability.

While planning to avail a  home loan, make sure you do not stand guarantee to any other loans, or keep a track of their defaults.

#Tip 7: Try to Get your Credit Limit Increased

Credit Utilisation Ratio is another factor that has a bearing on your credit score. It takes into account the spending on your credit card in proportion to your credit limit. If you have a credit card that has a smaller limit set in relation to your spending, you can request for an increase in credit limit. An increase in credit limit would decrease your credit utilization ratio and in turn, increase your credit score.

However, to be able to be eligible for an increase in credit limit, you should have shown regularity in your payments and be in sync with your income.

Additional Reading: How to lower your credit card utilization?

# Tip 8: Do not Close Old Credit Accounts

Credit History is another determinant of your credit score. Old credit accounts which are in good standing help you maintain a good credit score. If you close one such account, your credit report will have a drop in score as the age of your credit portfolio will come down. If it is absolutely essential, closing an old credit account can be held off till your application for home loan is successful.

End Note

There are many ways to boost your credit score while you apply for a home loan. However, the common thread in all these tips is that being responsible towards credit is an absolute necessity.