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Guidelines on the best steps that can help you to improve your credit standings before applying for a home loan 

When you apply for a home loan, as part of process of evaluating your application, the lender that you apply to for a loan will access your credit report from an RBI licensed credit information company (also referred to as a credit bureau) that operates in India. Your credit report will have a credit summary of all the loans and credit cards you have taken and their repayment history in addition to your personal identification information as it has collected from the various lenders where you may have taken a card or a loan. It may also have a “credit score” which is a measure of “riskiness” of any credit extended to you.

Credit scores along with the credit report are an important parameter for many lending institutions when decisioning applicants. As a rule, the higher the score, the lower risk profile the individual which indicates a better ability to manage debt. As the lending system is becoming more cautious and is implementing high end analytics and rules to segregate good credit from bad, individuals with higher scores stand a better chance to negotiate interest rates and be granted credit.

Simply put, a score is a mathematical representation of the data on the credit report and hence a low credit score may be due to unpaid dues reflecting on the credit report.

However, lenders do not completely rely only on data from credit bureaus like scores or credit report but take a 360 degree view of the applicant’s financial situation, residence status, employment, etc.

This means that a high score may not necessarily assure the customer of a loan.

Here’s how you can help your credit score:-

1) Check your credit report and score in advance of applying for home loan
One must engage in routine credit checks every quarter by accessing credit information reports from credit bureaus. This acts as a yardstick to where one is placed prior to seeking loans. A routine check helps in keeping track of any issues that may be affecting the credit profile and score. If you have cancelled or closed a credit card in the past, double check your credit report for any pending dues from that credit card. If a discrepancy is noticed due to that credit card or any other loan, one must connect with the lenders to correct the report.

2) Limit your inquiries for loans or credit cards
Not all credit inquiries are bad, but it is true that most inquiries may impact individual scores and risk profile. When searching for new loans/credit cards, there is a greater chance of increased levels of debt burden, thereby increasing the possibility of a default in repayment.  Shopping for loan/credit card should not be indulged in case one is not really interested in taking the loan/credit card.

3) Close any unused credit cards
It is recommended that one keeps track of all open credit cards and close unused credit cards. Unused cards are viewed as existing possible debt. Therefore, keep only credit cards that are used frequently and housekeep your cards regularly

4) Make timely bill payments
Make payments on credit card bills and loan installments as soon as possible, on or before due date. It helps to maintain a diary to reference all payment due dates. Any overdue payment will impact your credit report and credit score.

5) Don’t default on your bills 
Needless to say, if you default on a credit card or a loan installment, it will show up on your credit report and negatively impact your credit report and score. The new lender that you are applying for home loan can see on your credit report all your previous defaults with other lenders. Even if you have settled with a bank on your defaulted payments, they are still reflected in credit reports.

6) Keep all contact details updated with your lenders
Ensure all contact details are updated with all lenders since if addresses and telephone numbers are not up to date may result in credit card statements and payment reminders from lenders not reaching you and hence may cause delays in payments too.

- by Shahid Charania - Managing Director, Emerging Markets, Equifax

Source :- DNA

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