How Mortgage Influences Your CIBIL Score
Buying property is an expensive affair. People tend to see the process of buying a home as an emotional journey. But home loan/mortgage has a huge impact on your Credit Information Bureau (India) Limited (CIBIL) score.
Home loan/mortgage forms the biggest chunk of debt you will probably ever carry. So, they directly influence your credit score.
MakaanIQ sheds light on how mortgage influences your CIBIL score.
Repaying your home loan/mortgage on time will make you loan worthy
If you had applied for home loan/mortgage, and pay your Equated Monthly Instalments (EMIs) on time, you will end up maintaining a CIBIL score of 750 or more. You will be considered a vigilant borrower by banks and financial institutions. This will strengthen your prospects of getting loans and credit cards in the future.
Balance between secured and unsecured debt
A secured loan is backed by security/collateral. Home loans, Loan against Property (LAP), auto loans and gold loans, for example, are secured loans. Loans such as personal, credit card, consumer and overdraft are unsecured debt. Greater your unsecured debt, greater the risk of lending to you. This is why excessive unsecured debt affects your CIBIL score negatively. As a loan borrower, you must avoid entire intake/dependency on unsecured liabilities.
The tendency to default on unsecured loans is greater, because such forms of credit are offered at a very high rate of interest. So, one unsecured debt is assumed manageable. A delay in repaying unsecured obligation even by a day will lower your CIBIL score drastically.
Mortgage/LAP is presumably a reliable form of loan
A mortgage (or a LAP) is always considered as a safer form of debt because your loan is linked to an asset (i.e. your property). As the name suggests, LAP is a loan given against the mortgage of your property with the lender. Banks lends to you a percentage (which ranges between 40-60 per cent) of the market value of the property (as assessed by the bank's empaneled valuator). Paying back mortgage loans on time will set your CIBIL score on an ascending path.
In the case of under construction properties (home loans), though there is security involved, timely delivery of flats is always a concern for both lenders and borrowers.
Longer the tenure period, higher your CIBIL score in the long run
When you repay your home loan/mortgage EMIs in a timely fashion over a long period (i.e. serve interest payments on time for 15 years and above), your CIBIL score rises gingerly. Your high CIBIL score reflects the facts that even over a long period, you paid instalments on time, in a systematic fashion.
Control your credit appetite; Maintain your CIBIL score
Never push your limits when it comes to taking loans. Home loan/mortgage eats a major portion of your income, and that too for a very long time (considering the tenure of secured debt). So, do not eat more than what you can chew. Otherwise, it will have a negative impact on your CIBIL score.
Never apply for a loan unnecessarily. You must also ensure that you earn enough to handle additional debt, in order to maintain a good CIBIL score.
A negative impact on your CIBIL score can be massive too
Home Loan/Mortgage has an important bearing on your CIBIL score. If you repay your loan on time, this will have a positive impact on your CIBIL score. In the same way, a delay in payment or skipping an EMI can affect your CIBIL score negatively. Make sure that you repay your loan on time or maintain sufficient exigency funds. You must have a clear idea of how much you need to make monthly payments, and how much you need for your day-to-day needs. Budget your expenses carefully.
Loan for an appreciating and a depreciating asset
Loan for a home/property is a loan for an appreciating asset. But, a loan for Car (i.e. an Auto loan) is not an appreciating asset. It is, indeed, a secured debt but a depreciating asset. Loans for appreciating assets have a positive impact on the CIBIL score. This is so, because the value of such assets rise over time.
Be a smart guarantor in a home loan
Are you a guarantor in someone else's home loan/mortgage? Have you ever checked your CIBIL report? Have you ever wondered the extent to which your CIBIL score is damaged by somebody else? As a Guarantor and even as a home loan buyer, you must know that you are as responsible for someone else's debt, as you are for your own liability. Someone else's delay in payment/default/type of credit/pattern of loan repayment etc. can have a positively/negative impact on your CIBIL score, depending on the case.