Your credit score is the most important aspect when it comes to borrowing any kind of credit, especially home loan. Only having a steady income and minimal expenses will not help the financial institutions to gauge the risk associated in lending money to you for a home loan. If you are planning to buy a house with a credit score of 603, there are a few things that you must consider before applying for a loan.
Having a home that you can call yours is a dream we all often see. Buying a house, going on the dream vacation, getting a new car – are some of the common life goals. We plan a lot to achieve each of these life goals. However, buying big ticket items like a vehicle or a home requires a decent amount of finance. Even though we work hard for years to save money towards the goals, we end up asking for some more credit to help us reach our goal.
Same is the story for buying a house. If you are about to begin your journey of buying a house and have just started looking for a home loan with a credit score of 603 – you need to stop right now. Why? Well, because with a credit score of 603, it might get a little difficult for you to find what you are looking for – affordable interest rates on home loan.
Let us understand the concept of credit score and a home loan in detail.
What is the credit score required for a home loan?
A credit score of 640-750 is generally considered good by most lenders and financial institutions. If your score falls within this range, you will be getting loans at good interest rates. Because the risk associated with lending to a person with a high credit score is lower.
High Credit Score = Low Associated Risk in Lending Low-Interest Rates Loan
Low Credit Score = High Associated Risk in Lending High-Interest Rates Loan
So, if you have a credit score of 603 and you are planning to buy a house – start working on your credit score. Improve your credit score and then apply for loans as you will get low-interest rate offers. Otherwise, you will be paying way more in the long run due to the high-interest rate of the loan.
How to improve your credit score to buy a house?
Improving a credit score needs time and effort. You may see your credit score increasing by 200 points in 30 days while some people may witness the score increasing by 100 points in 45 days. And for some other people, it may take a year till they witness the change in their credit score. Therefore, the time it will take for your credit score to improve from 603 to 640-750 so that you can buy a house depends completely on your financial activities.
Here are a few things you can do to see an improvement in your credit score:
One more thing you can do to improve your credit score from 603 to buy a house is – to add different types of credit to your portfolio. However, take this step only if you are sure that you can handle new debt otherwise it will backfire. Your credit score is your financial identity. Maintaining a good credit score is a must-do as it helps you in getting loans at low-interest rates, credit cards with the limit that you wish for, and also getting employed.
Buying a house with a loan is a long-term liability you will be taking up. Thus, work on your credit score and improve it before applying to lenders and banks.
FAQs related to credit score and house loan
Your credit score has got nothing to do with you buying a house if you have the money and you do not need any external help. But if you are planning to buy a house with a loan and you have a credit score of 603, then you may not get good offers. As a credit score of 603 is considered to be below average in India by most of the lenders, banks, and NBFCs.
The answer is – it depends. If you have something to offer the lender or bank as collateral, then you may get a good amount of money as loan for your house. However, remember that the interest rate will not be lowered just because you have collateral in place to offer.
750 is the most acceptable credit score if you want to buy a house with a good interest rate loan. If your credit score falls below 750, you will have difficulties in finding good offer on loans as the risk in lending money to you is high. To compensate that lenders quote a higher interest rates on loans for people with a low credit score.
Once you buy a house with a loan, you will have to start paying the EMIs. Repaying the EMIs on time and in full will help you build your credit score over time. You may not witness an improvement overnight.
Good things do take time. Well, building a good credit score will take some time. With the right set of financial practices, you may reach your goal of building an excellent credit score within 4 months to a year. Identify the reason your credit score is getting impacted and work on the problem area to help improve your score so that you can buy a house with the best interest rate loan.