Impact of credit cards on your home loan

There is a deep-set relationship between your credit card and a home loan.

“Credit card is a double-sided sword. If you don’t use it wisely you can enter into a debt trap which can cause you a lot of financial trouble,” Balwant Jain, Financial Planner told Zeebiz.

The expert went on to talk of ‘impulsive purchasers’ that at a swipe of a credit card do not realise how this may impact their ‘credit history’ or credit ‘score’.

A credit score measured by Credit Information Bureau India Ltd (CIBIL) is one which is used by banks and financial institutions or any lender to check the creditworthiness of loan applicants or borrowers. “A CIBIL score of 750 and above is considered to be very good,” a report by BankBazaar said.

One of the methods of increasing credit score entails a ‘clean credit card,’ which simply means no outstanding debts among other factors.

“If you have delayed or defaulted on credit card payments or if you have caused the credit card companies to write-off the payments that also spoils your credit score. This makes it difficult for these customers to get a home loan,” Jain added.

“While evaluating a home loan application, banks or lenders, calculate an applicant's borrowing ability based on his/her credit limit. Not just this. Lenders also reject housing loan applications if prospective borrowers have too many credit cards, huge credit card debts, and default payments,” a report by ET said.

Having a higher credit card limit can thus reduce chances of getting a home loan.

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