A loan against property, which is also called a mortgage loan, is a secured loan that can be taken by pledging property as collateral to a lender. The loan amount received will be of a certain percentage of the property’s market value. Now, since these amounts are usually very high, this loan can have a big impact on your credit score.
Whether the loan is repaid on time or not will determine the positive or negative impact on the CIBIL record. Here are 4 ways in which a loan against property can have a vital influence on the credit score:
- A high loan amount can boost the CIBIL score
Lenders usually offer a higher loan amount for a secured loan as compared to an unsecured one. This is the reason why a loan against property can even go into crores. The amount of credit a borrower is exposed to contributes to about 25% of their credit score. So, try to apply for loan against property with a higher loan amount as this can help in improving your credit score. Of course, this will depend on the timely payments of the monthly instalments. The payment record forms 30% of the CIBIL score, so make sure to not default on any of the EMIs. This can go a long way in boosting creditworthiness.
- This loan can reduce the credit utilisation ratio
The credit utilisation ratio is the percentage of credit that is being used from the total revolving credit available. A credit card is an example of revolving credit, as the limit is restored when the debt is cleared. Any credit bureau will calculate your credit score by evaluating the credit utilisation ratio. If this ratio is high, it can result in a poor credit score. By using a loan against property to consolidate debt, thereby freeing up credit utilisation, you can effectively improve your credit score.
- A secured loan will add to the variety of loans
CIBIL does not just take into account the loan amounts but also the types of loans while computing an individual’s credit score. This is where taking a loan against property will balance out the other unsecured debts you may have taken. The repayment tenure and credit type make up for about 25% of the credit score.
- A long tenure has a significant impact on the credit score
Most borrowers choose to repay their mortgage loans over a long tenure. Doing this will not just help in bringing down EMIs but also establish you as a reliable borrower as you clear each monthly instalment on time. This can help in improving the credit record as paying EMIs on time will add to the 25% which makes up for the credit type and duration. Now, it is important to check the loan against property interest rate before opting for a long tenure. Getting an affordable rate is vital for the EMI payments to go smoothly.
Lastly, always make sure to use a loan against property EMI calculator, which will help in choosing a loan plan that is easy to pay off.