Buying a house in today’s times is no less than a challenge. Although some builders are coming up with luxurious apartments, and state-of-the-art architectural designs, the cost of these homes is also skyrocketing, and that’s without the added expenses of getting the interiors of the house done, or buying the furniture and furnishings. Thankfully, a lot of banks and financial institutions offer long term loans at reasonable interest rates.
Let’s look at the requirements for such a loan. Banks look at your records when you apply for any kind of a loan. They need to understand your credibility to assess whether you’ll be able to repay the loan. This is done by evaluating your credit score which determines the creditworthiness of a prospective loan applicant.
A credit score is a 3 digit number on a scale of 300 to 850 which determines your ability to repay a debt. It is used by lenders to get an idea of how much of credit risk are you? The higher the score, the higher your chances of securing a loan. Individuals with high credit scores are considered as financially trustworthy, i.e., they have high credibility when it comes to making payments on time.
There are a few renowned Credit Bureaus worldwide namely, Equifax, TransUnion, and Experian which use predictive models to determine your credit score. Any individual with a score in the range of 700 and above is taken to be a pretty good bet and has higher chances of being approved for a loan. People with these credit scores are viewed as financially responsible and better at managing their payments. Their credit history shows almost no late payments on borrowings and low credit card balances. Such people usually qualify for lower rate of interests as they are perceived as low-risk clients by the lenders.
If your credit score ranges between 600 and 700, you’re still applicable for a loan or a mortgage, but you might have to pay a higher percentage down payment and have higher interest rates. Your credit report may show that you have a few late payments on your borrowings and may have maxed out your credit cards a few times. This puts you in a mid-risk zone and thus reduces your chances of taking out a reasonable mortgage.
Thus, if you’re looking to avail a housing loan, it pays to look at your credit score report beforehand and understand where you stand. A score of 600 and below is a poor credit score and not favorable for taking out a mortgage. Although some government-backed financial institutions may give you a long-term loan based on this score, it isn’t a sure shot thing. And if your score is below 500, then you truly need to take efforts to build a better score before thinking of long term loans.
Your credit score is usually a direct reflection of your past payments, and your existing amounts owed. But the good news is, changing your credit score is in your own hands. To improve your score, you need to try to make your payments on time and pay off at least part of your existing debts, after which your credit score will increase. Then you can avail a long-term loan at a low-interest rate and purchase your dream home.
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