Check your credit report before applying for a home loan

Credit Information Report is widely used by lenders to evaluate a home loan application. Understanding CIR will help you identify right time to apply for a home loan.

If you are planning to apply for any sort of credit facility for a home purchase in the near future,it is imperative to check your CIR 3-4 times each year and ensure that your Reputational Collateral is reflected accurately. This will provide you with access to credit faster and at better terms. And rest assured that Enquiries are not added to your CIR when you purchase one directly from a credit bureau.

CIRs have been widely used by lenders to evaluate loan applications for over 5 years. However,only recently have people begun to realise,how crucial it is to be aware of and maintain their credit history. Understanding the CIR helps you identify the right time in your financial life cycle to apply for a loan and increase your chances of a loan approval. Listed below are the most important attributes looked at by a lender while evaluating your application.

Attribute 1: Payment History

This appears in the Account(s) section of your CIR. There are 2 pieces of information: the Days Past Due (DPD),and the month and year of payment that reside here. The DPD indicates how many days the payment is late that month. Anything other than 000 is considered negative by a lender. Up to 36 months of this payment history (with the most recent month displayed first) are provided in this section.

This can be understood better with the help of an example.

If you missed a payment on your credit card bill your credit history will reflect that you did not pay on time. However,once you have paid the bill in full,your most recent payment history should reflect 000. For example,if you missed the payment in February 2010 and you finally paid the amount in June 2010 your payment history is likely to be reflected as in the illustration.

Note that while you have paid your dues in full,your credit history will only reflect that as per the date you made the payment. The fact that the bill was overdue for 4 months will continue to reflect on your Credit Information Report (CIR) even after you have paid your bill. Anything other than 000 on your payment history may be viewed negatively by the lender when deciding on your loan application.

Attribute 2: Current Balances

Appearing in the Account(s) section of your CIR,the current balances on various loans indicate the depth of your debt. The sum of your current balances helps a lender determine your strength to take on additional EMIs,in relation to your current income. Lower the current balance,the better the chance of your loan getting approved.

Attribute 3: New Credit Facilities

Story continues below this ad

If a lender observes that you have recently been sanctioned a number of new credit facilities,it would mean that your monthly outflow in terms of EMIs,are likely to have increased. Hence,it may have a negative impact on your loan application.

Attribute 4: A number of new Enquiries

If you have applied for a number of loans in the recent past,the chances of your loan getting approved may suffer. This credit behaviour indicates that you are credit hungryand implies that you are in an urgent need for money. It is likely to make lenders more cautious while evaluating your application.

Author is Senior VP,Consumer Relations,CIBIL