Here’s how mortgage betters your CIBIL score

Property purchase is a stressful affair, and for any salaried person it can be a life-altering decision. But most people are unaware of the fact that a property purchase is the best way to improve their CIBIL score. A mortgage has the biggest impact on one’s CIBIL score as it’s the largest piece of debt that one carries. Although your CIBIL score may drop a few notches when you apply for a home loan intially, it will go up over time as you make timely mortgage repayments. Let us take a close look at how your mortgage impacts your CIBIL score.

A mortgage indicates you are credit responsible
Mortgage has huge significance on your CIBIL score as it indicates that you have been responsible with your financial dealings so far. And if you maintain a good CIBIL score of 750 and above, your bank considers you loanworthy in the very first place itself.

A mortgage is good debt
A mortgage is also considered as good debt because it is tied to a physical asset (your home). This is opposite to credit card debt or a personal loan that is unsecured and does not have any asset backing in a physical form.

Your mortgage impacts your credit mix positively
Around 10% of your CIBIL score is on account of the credit mix you have. The credit mix refers to the types of credit you have availed of. If you have a mortgage along with some other unsecured credit, it is indicative of the fact that you have maintained a good credit mix. This in turn, impacts your CIBIL score positively.

Your CIBIL score increases over time on account of your mortgage
You have obviously opted to take up a home loan because you have the confidence that you will be able to make timely repayments on the same. When you make repayments on time over a prolonged period, your CIBIL score goes up gradually. This is because it exudes your dedication towards timely repayments. So, service your home loan well to give a boost to your CIBIL score.

You do not become credit hungry
If you are a salaried individual, repaying your home loan is going to eat into a substantial part of your salary. As a result, you may not apply for other forms of debt ( such as too many credit cards or other unsecured loans). This will not just keep your CIBIL score intact, rather you will not be viewed as credit hungry individual.

The negative impact that a mortgage may have
Just as it’s good to be positive about life, sometimes life can dish out nasty surprises as well. If things go awry and you skip a repayment or two on your mortgage schedule, it can bring down your CIBIL score drastically. As we mentioned earlier, a mortgage has the largest bearing on your CIBIL score. Therefore, the negative impact can be just as heavy as the positive impact of timely repayments. So to avoid landing in such a situation, it’s advisable to maintain an emergency fund at all times. And ensure that the amount saved in this fund is sufficient to meet your regular expenses (including your mortgage) for at least the next three months.

Therefore, ensure that you repay your mortgage on time and enjoy the benefits of a high CIBIL score throughout your loan tenure.
(Image: Thinkstock)

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About the author: Rajiv Raj is the Director and Co-Founder of www.creditvidya.com