Why should you check your CIBIL score before buying a House?
Most of people of current generation buy their first house even before getting married and with the
advent of credit information bureau like CIBIL, the knowledge about your own credit score and credit history has become very important in your decision to buy a house. Let us discuss why it is important for you to check your credit score and CIBIL report before you take any concrete steps towards buying a house with home loan.
Importance of the CIBIL Score in your housing purchase decision
With people buying their first house at the beginning of the career, it is but natural for the current generation to take a home loan to fund the purchase of the house. Before giving you home loans the home loan lenders calls for your credit score and credit history from any of the credit information bureau.
TransUnion CIBIL Limited being the pioneer in the field, the acronym CIBIL has become synonymous with credit information bureau. All the banks and financial institutions are required to share the details of loans and credit cards transactions of their customers with these credit information bureaus like CIBIL.
Based on your credit transactions and payment history of credit cards and loans, the software of credit information bureau analyses these transaction on various parameters and generates a credit score. While generating the credit score due weight is given to your timely payment of your credit card dues as well as regular servicing of any loan which you have taken.
Thus the credit score is a proxy of probability of you regularly paying your home loan in future. Moreover the home loan lenders prima facie give importance to your credit score in order to decide whether to proceed with your home loan application on not.
As per CIBIL data more than ¾ of the home loan were given to the people whose CIBIL score was 750 or above. The score is a product of all the data of your credit transaction reported by various lenders to the credit information bureau.
Why you need to obtain your CIBIL Score before buying a house
Since most of the home purchases are made with the help of home loans, the success of the deal of home purchase is dependent on you ultimately getting the home loan budgeted in the funding pattern assumed by you. So in order to assure yourself that you are prime facie eligible to avail the home loan based your credit history with credit bureaus, you should obtain your credit report and credit score well in advance before even you pay any token money to the seller or the developer.
It may happen that due to some mistake on the part of the lending institutions some wrong adverse entry is reported and is appearing in your credit report which in turn would have affected your overall credit score adversely.
For example unrecoverable credit card outstanding dues, in respect of some one else and written off by the lender, is appearing in your credit report. Or some of the payments made by you towards your EMI of a personal loan is not reflecting in the CIBIL report due to any reason.
So in order to ensure that such mistakes do not appear in your records when the prospective home loan lender approaches the credit information bureau for your credit score, yyou need to get any such errors corrected. Since the process takes some time as you will have to write to the lender concerned with a copy to the credit information bureau like CIBIL and chase the reporting bank or financial institution to respond.
With increased prices of house the amount of token money required to be paid has also gone up accordingly. So in case you have already paid the token money to the seller before applying for home loan, it may happen that your home loan application may be rejected due to your credit bad credit history as the credit history might have been impaired due to your bad credit transaction or may be due to some wrong reporting by the lender institutions.
In such a case your token money can also be forfeited. Even if the token money is not substantial, the dream of owning a house may get shattered. So you should obtain the credit report and credit history even before you start the exercise of house hunting so that by the time you are ready with your upto date and duly corrected credit report at the time of making home loan application.
As doctors advise us to go for a regular health check up every year after completion of 35 years of age, I would strongly advise all the potential borrowers to go for “annual credit health check up” by obtaining your credit score and credit history.
As per the RBI mandate all the credit information bureaus are required to make the credit score and credit report available freely once in a year to every one. So though the regular health check may cost your some significant sum of money, going for regular annual credit health check up will not cost you anything.
On the contrary such pro activeness may sometimes help you save forfeiture of significant earnest money in case of house purchase deals.
Obtaining annual credit score and credit report will help you keep your credit history relatively clean and will prompt you for timely corrective step.
So do not wait till you actually make home loan application, go and obtain the credit report of not only your but all the family members whom who are contemplating making joint applicant for the home loan and joint owner.