Credit Score for Home Loan

A credit score is a key factor lenders use to assess your eligibility for a home loan. A higher credit score indicates responsible credit behaviour and improves your chances of loan approval, lower interest rates, and better repayment terms. In the UAE, maintaining a good credit score helps you secure faster approvals and more favourable home financing options.

Credit Score for Home Loan

Buying a new house is no small feat, as you will either spend a significant chunk of your life’s savings in one go or score a substantial amount of home loan from a trusted lender. However, if you are buying your house in your early earning days, chances are that you will have to use a home loan for the purchase as having that kind of savings may take several decades.

As mortgage or home loans are the biggest loans available out there and have tenures ranging up to 30 years, banks take special protective steps before approving home loans. Besides proving your creditworthiness, you should also have good enough property to buy with the loan amount.

One of the main factors determining your creditworthiness is your credit score for house loans. To understand the concept better, this piece is dedicated to covering the major aspects related to credit score for house loans and some other factors that may influence the status of your home loan application.

What is the Optimum Credit Score for Getting Home Loans?

Whether we are talking about credit scores for personal loans, home loans or car loans, credit scores must always fall in the “good” or at least “fair” category for the application to process swiftly. Several banking experts claim that any credit score for house loans over 711 points will help you make a strong for your home loan.

While 711-745 falls in the “good” category of credit scores, it is essential to note that banks also offer loans to people with credit scores ranging from 570 to 710 points. This latter category is usually described as a “fair” credit score. On the lower side, any number between 300 and 569 is considered a “poor” credit score. And, as one might expect, applicants with poor credit scores are not preferred by banks for home loans or any other kind of loan.

What part of Home Loan Application is Affected by Credit Scores?

It has to be remembered that credit scores for house loans alone don’t decide whether your loan will be approved or not – that decision is based on multiple factors. However, it plays a significant role in the decision and directly affects the home loan interest rate you get. For instance, a poor credit score signifies that you are not creditworthy, hence risky. Consequently, a bank would charge higher interest rates if they see you as a risky borrower.

In a nutshell, your credit score may not be directly related to loan approvals, but it certainly makes a difference in one of the most important factors related to home loans. One can say that as far as the level of influence on home loans is concerned, credit score for house loans takes precedence over most other factors.

Other Factors That Influence Home Loan Application

Property Details:

Home loans are similar to car loans in that they are unsecured loans, meaning that you don’t have to present collateral to secure your loan. In the case of home loans, the property for which you are trying to take a loan is treated as collateral itself. The bank will take your planned property under consideration when you apply for a loan, and this property should have a good value with sufficiently promising prospects for increment in the near future. Properties suspected to be prone to a decrease in value may cause hindrance in your loan application. It all boils down to this: the bank must have factual reasons to believe that your property will be valuable enough to cover the loan amount in case you fail to repay it.

Debt-to-Income Ratio:

Common across all types of loans, your debt-to-income ratio is another thing considered when you apply for a home loan. The debt-to-income ratio demonstrates whether you will be able to cover the loan amount comfortably. A low debt-to-income ratio should be targeted when applying for home loans, with any ratio between 20% to 35% generally considered worthy of home loans. Ratios higher than 35%, on the other hand, are considered risky.

Applicant’s Age:

Home loans are exceptionally long loans, with tenure going up to 30 years in several cases. This makes it vital for the bank to consider the age of the applicant when a loan application is submitted. Ultimately, the goal is to determine the remaining earning years of the applicant, and the loan amount and tenure are decided on this information. Naturally, a borrower would be unable to pay back the loan when they have retired and don’t have a working source of income anymore. However, if you have a co-borrower signed on your home loan application, the age factor may get some relaxation.

Employment Status:

The kind of occupation you are into and the duration of your employment also impact your home loan application. Demonstrating that you are capable of holding a good job for a significant amount of time will present you as a financially stable candidate.

Credit History:

Your handling of your financial accounts and credit instrument until now is also presented in your credit history. From the small utility bills you paid to any credit cards, cheques, bank accounts, and loans you signed up for, everything is taken into account. Banks and lenders take note of this information to check whether you are prompt with your payment. Luckily, your credit score for house loans also considers your credit history.

How to Check Your Credit Score for House Loans in the UAE?

Credit scores in UAE are provided by the AECB or Al Etihad Credit Bureau. Both credit scores and credit reports can be checked on either their official website or mobile application. A fee of AED 84 + VAT is applicable for checking credit scores and the credit report. However, if you want to check your AECB credit score for free.