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What should I do if my credit score is low for a mortgage?

If you are planning to buy your home, you know by now that maintaining a good CIBIL score is very important. Most banks in India consider people with a CIBIL score of 750 and above loan worthy. If you find that your CIBIL score is well below 750 you will have to improve it before you think of applying for a home loan.

Here’s what you can do if you find that your CIBIL score is not up to the mark:

  1. Look for CIBIL report errors

Sometimes there may be discrepancies in your CIBIL report for no fault of yours. There may be a wrong information about an overdue loan that has been closed from your end, or a mix up of identity that may have occurred when the bank was passing on your credit information to CIBIL. If you spot such an error, you can approach CIBIL with a request for the rectification of the same. In credit bureau parlance, it is called ‘raising a dispute’. CIBIL routes your request to its Dispute Resolution Department, which then analyzes the error and resolves errors with the relevant bank within 30 days. Once the issue is resolved, the correct information is updated on your CIBIL report.

  1. Chalk out a plan for making repayments

If there are no errors in your CIBIL report and your score is low on account of bad payment history, you have to start rectifying it. Here’s what you can do to get your credit history back on track.

  • Start by tackling the most recent and cheapest debt.
  • Make all your EMI payments on existing loans on time.
  • Don’t stop using or cancel any of your credit cards. Keep using it, ideally pay your bill in full. If that seems tough, keep the utilization under 30% (do not keep more than 30% amount of your credit limit on a revolving cycle).
  • Make bill payments on credit cards well before the due date.

You may have to cut down on some expenses and financially discipline yourself to achieve this goal, but unless you do it, there is no way you can improve your CIBIL score. Keep in mind, patience is your biggest virtue during this process and it may take six months to a year to make amends for the financial mistakes you may have made over years in the past. However, making timely repayments on existing credit and closing overdue payments will build your credit score eventually.

  1. Consider co-applying with your spouse or parent

If you absolutely must take a home loan, despite a poor credit score, you can consider co-applying with your spouse if she has a good credit score. You may also consider taking a loan with your father if he is still working and has an impeccable credit history.

  1. Put down a higher down payment

If you have set your heart on a property and are not willing to let go of it no matter what, you can also consider putting a higher down payment. Your bank may be willing to lend if you show some credibility on that front, but may still offer you a loan that may be a higher rate of interest than the prevailing rates in the markets.

  1. Stay on rent a little while longer

It’s great to dream about having your own home, but there are literally a million expenses you have to think about when you actually go about buying one. Taking on a mortgage with a poor credit score will escalate your costs further. Considering all of this, it may make better sense for you to stay on rent for a little while longer and save up for your own home. You can concentrate on improving your credit score in the meanwhile.

A poor credit score is nothing to be disheartened about because it is not something that will stick to you forever. All you have to do is get into a strict financial regimen and get your CIBIL score back on track.