In recent years, it has become easier to avail a home loan. Banks are more forthcoming while interest rates have also become favourable. There is much more clarity within consumers about the requirements of taking a loan. However, in fulfilling all formalities and submitting all documents, people often forget to pay attention to their credit score.

A credit score is a statistical number that evaluates a borrower's credit-worthiness; this is determined by his credit history. This score is an important factor that banks take into consideration while deciding upon the sanction of a loan.

How can one calculate his credit score in India?

In India, one can approach any one of the three Credit Information Companies (CICs)- Equifax, Experian, and CIBIL TransUnion. All banking institutions are members of these CICs.

Credit score reports can be applied for between January and December. When one applies for a credit score report, the CIC collects and organizes the individual's data from his banks. The score is based on-

• Credit utilization: How much credit the consumer is using
• Defaulting: How many accounts are past due and by how many days
• Trade attributes: What type of credit does the consumer avail

An individual's past performance on his debt obligations (whether he made timely payments, repaid the loan fully etc.) is an important variable in the calculation of the score. The types and tenures of loans availed and recent credit behaviour, like credit card usage, also contribute significantly to the score.

After taking these factors into account, the CIC calculates the credit score, which is a 3-digit number in the range of 300-900. While each bank has a different requirement for minimum credit score, a score of 750 and above is generally considered good.

Why is a good credit score important while applying for a home loan?

One would give a loan to someone only if he thinks that that person is capable of making the full repayment. Banks think similarly when deciding upon the approval of a loan. They're more likely to grant a loan to an applicant with a high credit score. A score of 750 and above means that he has been efficient in meeting his debt obligations, whether on credit cards, car loans, home loans or any other loans.

A good credit score makes available best mortgage rates. When thinking of loans of a longer tenure, of say more than 10 years, a lower interest rate can make a huge difference.

Moreover, if a bank has faith in a borrower's creditworthiness, it will be willing to finance maximum-possible amount for the borrower.

Therefore, a good credit score puts both the lender and borrower at advantageous positions: banks face lower risks of loan defaults and borrowers are able to avail huge loan amounts at lower interest rates.

A bad credit score, on the other hand, can have negative effects. If one fulfils all conditions for the disbursement of the loan, but has a bad credit score, he can be denied the loan.

The credit score is considered to be the most important factor by the banks.

For tips on maintaining a good credit score, read here.