If your partner has a bad credit score, your home loan could be denied. Shocking isn’t it? Many couples avail joint home loans to buy a property and enjoy tax benefits. This makes it very important to know partner’s credit score before availing home loans.
Why joint home loans? If both you and spouse are working, purchasing power increases substantially. Properties especially in metro cities are costly, but a couple earning good salaries can afford the purchase with a home loan.
Let’s have an example. You want to avail a home loan and buy a property of Rs 1 Crore in Bengaluru. The bank may sanction 80% of the cost of the property (Rs 80 Lakhs) and you will have to arrange the remaining amount yourself. The home loan charges interest of 10.5% a year, with a tenure of 20 years. The EMIs on home loan come to nearly Rs 80,000. You require a gross salary of Rs 2 Lakhs a month as banks consider around 50% of take home pay for home loan EMI payments. If you have this salary great, or else you will have to avail a joint home loan with working spouse. The combined income increases eligibility for home loan.
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Marriage makes you and spouse a single financial unit. You may not want to include spouse’s income when calculating home loan eligibility, but the bank will still want to know spouse’s KYC details and other requisite information.
Fortunately there’s nothing called a joint credit score. That’s good news isn’t it? Your spouse’s credit score doesn’t affect your credit score.
The bank does not merge the credit scores of both applicants (you and spouse), for calculating home loan eligibility. The bank will analyze the credit scores individually. If your partner’s credit score is bad and his/her income is not included when determining home loan eligibility, the bank will take a call. However, the bank will deny home loan if his/her income is included to raise eligible home loan amount. (This is if one of the partner’s has a poor credit score).
SEE ALSO: How to Maintain a Good CIBIL Score?
Well, if your partner’s credit score is bad, there’s no chance of availing a joint home loan. You will have to avail the home loan in your name. If your wife is the co-owner of the property, you will have to take home loan in her name. This is because all co-owners must be co-applicants, but all co-applicants need not be co-owners. You are left with no choice, but to improve partner’s credit score.
The first step to improve credit score? Make sure repayments are made in time. This is the fastest way to get good credit score. If you delay EMIs and credit card bills by even a day, credit score is impacted. Make payments in time and improve credit score.
Is your partner spending heavily with credit cards? Is she paying minimum amount due on credit cards? She must get off debt real fast.
Minimum amount due on credit cards is the minimum amount paid on or before the credit card payment due date. This is 5% of outstanding credit card balance. Banks charge an interest of 24-36% a year on credit card outstanding, after minimum amount due is settled. If you pay just the minimum amount due on credit card to keep the account active, you don’t get to enjoy the interest free credit period. (If you pay off the credit card bill in full each month, you pay no interest).
Avail a personal loan which charges 14-17% interest a year and pay off credit card dues. This helps save on credit card interest. You can also avail a secured loan like loan against FD to repay credit card debt. Banks charge lower interest on loan against FD vs personal loans.
SEE ALSO: How To Get My Cibil Report Online?
If you want to improve credit score, make sure you don’t pile on the debt. Avoid availing fresh loans until debt obligations are settled. If you apply for additional loans as you repay multiple EMIs, credit score is impacted and there are an increased number of hard enquiries. Hard enquiries are enquiries made by lenders on your credit score, when you apply for loans. Hard enquiries impact on credit score.
Always check credit report to detect errors. Incorrect entries may affect credit score. Check credit report and credit score for free at IndianMoney.com. Knowing credit score helps get home loans sanctioned.
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