Proving Paid Debt and Getting A Home Loan Worthy Credit Score Explained
Question 3 – Some time back I had opted for a credit card loan and unfortunately had delayed payments. Two months back, however, I cleared all dues. Is there some kind of document like NOC that I should get from my bank or is there no need?
Answer – Yes, you should ask the bank to give you a formal document reflecting no dues are pending. However, NOC is not the document you should be asking your bank to give to you—but an account closure statement.
It is not too uncommon for banks to not close a loan account even after they have received all payments, and as a result the loan reflects as an open account on the CIBIL report. Although oversight is the reason why banks forget to inform CIBIL that all dues have been recovered, the lapse can hurt the individual involved if he’s not cautious.
To a future lender, an open account on your CIBIL report means credit that has not been cleared. So, the lender will be reluctant to extend a loan to you.
Once you’ve settled a loan, ask the bank to issue an account closure statement or certificate, a formal document declaring the loan was paid and the transaction has been closed.
There’s no need for NOC because you’ve already paid the loan amount, and in any case, it’s not like the bank is not asking for more money.
Question 4 – My CIBIL score is around 600 primarily because of a few irresponsible financial decisions taken in the past. I am planning to purchase a home. How can I improve my credit score to be eligible for a home loan and how much score is good enough?
Answer – Nearly 80% of loans are granted to individuals with a score over 750. So, you should target 750 before approaching a bank with a home loan request, which basically means you’d need to improve your score by 150 points.
This won’t happen overnight; in fact it will not even happen in a couple of months. However, if you show financial discipline and take certain smart decisions, you’ll become eligible for a home loan as fast as possible. Some tips in this regard are:
- Clear all pending payments – If you’ve any outstanding payment, clear it as soon as possible. Pending payments can hurt your score badly. After you’ve cleared outstanding bills, pull up a copy of your credit report and peruse it to ensure the report is showing the correct status.
- Pay all bills in time from now onwards – Any delay in payment not only attracts a surcharge but also reads poorly on your report. Ensure you use your credit card within your limit and set reminders on phone for due dates. Sometimes managing too many credit cards can be problematic. If that’s what’s happening, it’s best to close credit cards which you use the least.
- Pay your bills in full – Paying the minimum amount only also hurts your credit score, besides showing to lenders an inability to manage finances smartly.
- Avoid using your entire credit – Just because your credit card gives you INR 2 lakhs limit doesn’t mean you’ve to use it for that much amount. High credit card usage (credit card usage is defined as the percentage of total available credit used in a month) by itself can cause your score to drop, irrespective of whether you pay the bills on time or not.
- Maintaining an unhealthy credit mix – A loan portfolio skewed towards unsecured loans make for a bad reading. Ideally, you’d want the ration between secured and unsecured loans to be 80:20.