Does Your Partner Have A Bad Credit Score? This Is What It Can Do To Your Home Loan Application
Renu Malhotra, a 32-year-old software engineer, found her dream home after eight months of house hunting. All she needed to do now was to apply for a home loan to transform her dream into reality. That is when she decided to check the credit scores of her spouse and her own.
She realised that though her husband's credit score was not horrible, it certainly did not qualify as an excellent one either. This got her into thinking about how the financial and credit history of your partner can affect the odds of your home loan being approved.
MakaaniQ tells you how your partner's bad credit score can affect your home loan application, even if your credit score is good.
How does your partner's bad credit score affect your home loan prospects?
Marriage makes you and your partner one financial unit. Even if you do not want to include your spouse's income while proving your home loan eligibility, you will still be expected to present your spouse's know your customer (KYC) details and other general information.
However, this does not mean that the lender will merge scores of both applicants. Banks and financial institutions analyse credit scores individually. They take a call if the income of a bad credit scorer is not included while determining home loan eligibility and terms.
But you can find your home loan application denied if your spouse's credit score is bad and if his/her income is included to raise the eligible home loan amount. “Your credit score is considered to be your financial reputation and commitment in the numeric format”.
The best way to apply for a home loan if your partner's credit score is bad is to take the home loan in the name of an individual. However, if your partner is a co-owner of the property, you cannot avoid taking him/her on the home loan (all co-owners must be co-applicants, but all co-applicants may not necessarily be co-owners). The best solution in such situations is to relieve the joint financial stress prudently and compassionately. You both must jointly take adequate measures to improve the credit score of your partner.
Tips to improve the credit score of your partner
- Make payments on time from now onwards
This needs no explanation. This is the easiest way to improve your credit score. If you delay paying equated monthly instalments (EMIs) or credit card bills even by a day, this can have an impact on your credit score. The maximum weightage of your credit score depends on how punctually you pay off your liabilities. Making payments on time should be the first honest step of improving your credit score.
- Make an attempt to pay off your debt fast
Try to make more than the minimum monthly payments wherever possible. If you expect an increment in your salary or if you have got that yearly/ monthly bonus, use this to pay more towards your home loan instalments. Lesser outstanding debt will certainly improve your credit score.
- Focus on correcting errors in your credit report
If you want to correct errors in your credit report, you must have your credit report. Understand your credit report and try to collect supporting documents wherever possible. For instance, if the delay in payment has occurred by a certain number of days but the instalment due was paid afterwards, you can ask your lender for a letter stating that the payment was received for the concerned month. Similarly, you can log in to the credit rating agency's website if the wrong information reflects in your name in your credit report.
- Do not apply for a fresh debt
Do not raise your debt burden until you pay off your running obligations. Too much debt and too many inquiries in your credit report can also affect your credit score negatively. For instance, if you get your home loan pre-approved but do not get it sanctioned and disbursed, this will have an impact on your credit score.