Ways in Which Mortgage Loan Impacts Your CIBIL Score

While availing a home loan helps you get the required funds for buying your dream home, it also has a direct impact on the CIBIL score. Read on to more about how mortgage loan influences your credit ratings.

If you have availed a loan against property and are paying the EMI on time consistently, you can be sure that your CIBIL score is high. The financial institutions will consider you a low-risk borrower, which in turn will strengthen your prospects of getting a loan or a higher limit on your credit card in the future.

Impact of unsecured loan on CIBIL

In a secured loan, the lenders take collateral from the borrower against the amount advanced. Loan against property, home loan, gold loan, are all examples of secured loan. Loans like overdraft and personal loans are unsecured debts. If you have a high amount of unsecured debt, the lender will consider you a high-risk borrower. Also, unsecured debts have a negative effect on the CIBIL score. The risk of defaulting on an unsecured loan is higher because these loans have a high-interest rate. A delay in the repayment of the unsecured loan can lower your CIBIL score drastically.

Mortgage Loan – A safer form of loan

A mortgage loan is considered to be a safer form of loan because the loan is linked to the asset. Usually, the financial institutions lend about 60 to 80% of the market value of the property. When you repay the mortgage loan EMIs on time, in the long-run, it has a positive impact on the CIBIL score. With each timely repayment of EMI, the credit score will increase gradually and showcase your creditworthiness. If you wish to avail a mortgage loan for a property that is under construction, though the collateral is involved, there is a risk of delay in the delivery of the property, which can be a concern for the lender.

Know your borrowing limit to maintain a good CIBIL score

Often, first-time homebuyers tend to get carried away and apply for a higher home loan than they can afford. You should avoid this mistake and determine your borrowing limit before approaching the lender. The mortgage repayment will take away a significant chunk of your income and for a long period. If you default on even a single EMI, it would have a significant impact on your CIBIL score. Apply for a loan that you can afford to repay easily without compromising on your other important expenses.

Taking a loan for an asset that has an appreciating or depreciating value

A real estate property is an appreciating asset, but assets like a vehicle is a depreciating asset. The loan availed for an appreciating asset has a positive impact on the CIBIL score. This is because the value of such assets increases over a period.

Be wary of signing as a guarantor

If you wish to become a guarantor for someone else’s home loan, you must be careful that if they default on their payment, it will affect your CIBIL score. But, if they pay the EMI diligently, it could have a positive impact on your credit score.

So, the mortgage loan has an impact on the CIBIL in more than one ways. Make sure that you maintain your credit score to a decent limit so that you are in the good books of the lenders always. If you have a high credit score, you can use it to your advantage and ask for a reduction in the interest rate.

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