A very good credit
record increases the chances of your housing loan application being approved.
Many people simply
apply for home loan without giving a second thought to how the lender - Bank
and HFC (Housing Finace Company) might actually perceive their loan
application.
Only recently have
people begun to realise how crucial it is to be aware of, and to maintain,
their credit (Loan) history.
If you have a very
good credit record then the chances of your home loan application being
approved are much better.
But those of you who
may not have the best borrower profile, understanding how lenders look at the
inherent risk of lending money will help improve your chances of qualifying for
credit. Thus, knowing how your credit data might be interpreted offers a chance
to improve your credit worthiness from a lender’s viewpoint.
Deciding
points..!
Following are the
aspects that affect a lender’s decision to approve or decline a housing loan
application:
Capacity -
What is your ability
to repay the home loan? Do you have a steady job or alternate source of income?
How many other loan
payments do you have, and what impact do these payments have on your monthly
income? Is your income sufficient to cover your contractual obligations, as
well as those other day-to-day expenses?
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| Ms. Harshala Chandorkar, CIBIL |
Credit Usage -
Have you used credit before? Do you pay your
bills on time? Do you have a good credit history?
Collateral/Capital -
Do you have other
assets which could act as a secondary source of repayment, such as rental
income or a fixed deposit?
Trawling
credit reports..!
Most lending
institutions pull out credit reports of all loan applicants. The information
included in your credit report produces a credit score that is reflective of
your overall credit standing as a borrower.
A credit score ranges
from 300 to 900 and is calculated based on information in the “Accounts” and
“Enquiry” sections of the report.
The closer your score
is to 900, the more confidence the credit institution has in your ability to
repay the home loan.
Understanding CIBIL
Credit Report..!
CIBIL ( && )
is the institution that compiles these reports, but it does not pass any
judgment regarding disbursal of loans. It is solely a provider of information
to banks.
Depending on their
respective risk appetite, banks have in place their own cut-off credit scores
for providing loans.
Understanding the
CIBIL credit report helps you identify the right time in your financial life
cycle to apply for a loan.
It is important for
you to regularly review your credit report in order to determine if the information
is correct.
In your credit
report, here are a few areas lenders focus on.
Payment History:
This appears in the
Account(s) section of your CIBIL credit report.
There are 2 parts to
this information: the DPD (Days Past Due), and the month and year of payment.
The DPD indicates how many days the payment is late that month. Obviously,
anything other than “000” is considered negative.
Up to 36 months (3
year) of this payment history (with the most recent month displayed first) is
provided in this section.
Current Balances:
Also appearing in the
Account(s) section of your credit report, the current balances on various loans
indicate the depth of your debt. The sum of your current balances helps
determine your strength to take on additional debt in relation to your current
income.
Naturally, lower the
current balance, better the chance of your loan getting approved.
New credit
facilities:
If a loan provider
observes that you have recently been sanctioned a number of new credit
facilities, it would mean that your monthly outflow in terms of loan repayments
is likely to have increased.
Hence, it may be
viewed negatively.
Number of new
enquiries:
If you have applied
for a number of loans in the recent past, the chances of your loan getting
approved are likely to suffer. Simply because such credit behaviour indicates
that you are ‘credit hungry’ & are in urgent need of money.
By understanding how
banks think, you can not only complete a lending application that will showcase
your strengths better but you can also pre-qualify for loans by lenders based
on their lending criteria.
This will reduce the
number of attempts you make to qualify. Fewer attempts at the doors of various
lenders for getting loans reduce the short term damage to your credit
prospects.
Ensuring that your
‘reputation collateral’ is reflected accurately will provide you with access to
credit faster & on better terms.
About the author..
Ms. Harshala Chandorkar
is Senior Vice president (Consumer Realations) at CIBIL
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