We all have a distinct definition of success. But most of us consider buying a house as the highest level of triumph. However, not everyone can pay for their dream home in one go, and saving money for it to pay in full takes a huge amount of time.
This is why many buyers turn to home loans. According to The Economic Times – Home Loan is a sum of money borrowed from a financial institution or bank to purchase a house. Home loans consist of an adjustable or fixed interest rate and payment terms. Speaking of interest rates, let us talk about credit score. This plays a role in home loans.
Normally, a good credit score gives you a lower home loan interest rate.
The higher your credit score, the more likely you will pay your debts in a timely manner. The lower your credit score, the less likely you will make payments on time. For those with lower credit scores, lenders may adjust home loan interest rates to accommodate for the additional credit risk on issued loans.
Here are a few tricks to improve your credit score:
- Focus on recent derogatory credit. Concern yourself most with past due balances, charge-offs and collections that have occurred in the last two years. Items more than two years old have less impact on your current credit score. In fact, if you pay off delinquent items over two years old, you may actually lower your credit score.
- Keep existing credit card accounts open. Your established credit history matters. If you have old credit cards that you don’t use often, you still have the benefit of the history they represent.
- Try to distribute debt evenly across your credit cards. If you can’t pay off all your debt at once, try to keep balances as close to zero as possible, aiming for under 30 percent of the available credit limit. Also, if your credit provider increases your credit line, the ratio of debt to available credit is automatically reduced.
- Remove errors on credit reports. Check your credit reports for any errors and delinquent information. Follow the dispute process to challenge any inaccurate information—credit reporting agencies must respond to you in 30 days.
Consider these factors when you want to apply for a home loan especially for those who are on a budget. Remember, purchasing a property is a great responsibility. You must be prepared and financially secured.