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Mortgages tougher to get for credit challenged customers

Monday, March 03, 2014 by Rajiv Raj

hl129n29This is a generation that considers lending money a serious affair. Unlike in past, getting credit and enjoying it was hardly punishing. Today, if you are not disciplined in managing your credit, you are in a sticky situation. More so, if you wish to buy a house in metros where real estate prices have skyrocketed. So, if you wish to buy a house and have been callous in your repayment, you are definitely in a double whammy situation.  On the one hand, high real estate prices squash your hopes of buying a dream house, while on the other hand, your negligence in repaying your existing credit results in banks rejecting your loan application due to low credit score. Home loan companies and banks are insisting on a credit score of at least 750 before granting home loan to applicants.

This was not the situation almost 30 years ago. Typically, home buyers used to complain of the paucity of home loan options in the market. Then, in the early 90s, these customers complained of high interest rates. Then, post-2005 emerged the challenge of rising real estate prices for these potential home buyers. However, as we approach 2020, bad credit is going to be a real challenge in front of the home loan seekers. Banks have started accessing the credit score as a part of the loan applicant assessment process in India. CIBIL score has a large role to play in helping bankers in identifying the good borrowers on the street. Today, CIBIL score between 750 and 900 is a chief criterion by which most lenders base their decision of lending. A borrower with a low credit score amounts to exchanging bad credit for most banks.

CIBIL score can go below 750, due to reasons such as inability to repay your loans on time, borrowing too much, taking too many unsecured loans such as credit cards. However there is no need to lose hope. It can be improved over a period of time. Do check your credit score or CIBIL score online by paying a small fee. If you find yourself in good shape, a score above 750, preserve it by being disciplined with your credit habits. If you are below 750 then it is the time you take up some real efforts to improve on it.

Try to reduce your loans gradually. Go for some debt restructuring plan. You should take conscious efforts to pay your loans on time. This will surely improve your credit score to desired level of more than 750. And then getting a home loan will not be a challenge. Hence, it is important that we monitor our credit score and take corrective measures to maintain it.

MadanRajiv Raj

Rajiv is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India’s first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

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