Banks charging more on home loans? Blame your credit card

Partial credit card payments, high credit card debt and defaults on previous loans make lenders charge you more on home loans.

Consider a personalised credit score to be like 10th class examination. Just like how you get an admission in a reputed college if you score well, a good personalised credit score could get you loans at a cheaper interest rate.

So to keep yourself within good score limits it is important to know what brings down your score so that you can avoid them.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

Untimely credit card payments

Do not delay your credit card payments. If you do, it shows as an overdue (days past due) in your credit score.

This is not something that lenders are happy to see.

Not making timely payments on your credit card shows that there is no discipline on your part to make repayments.

Keep your credit card debt low

If you have a limit of Rs 1 lakh, stick to it or keep it even lesser.

Do not shoot the limit every now and then.

It gives an image to the lenders that you are heavily dependent on debts or overleveraged.

Make full payments

Every month your credit card statement shows minimum amount due.

Just because you have an option to pay minimum amount due does not mean you should use.

Pay your total amount due.

It is healthy, and you also avoid paying extra charges such late payment fees, interest and service charges.

Loan closures

You may have paid off your previous loans. But unless the loan account is closed it does not show as the loan has been paid off in your credit score and it may bring down your score.

Follow up with your loan officer; ensure that the loan account is closed.

Make sure you collect a copy of loan closure letter or a no-due certificate and keep it safe, for you never know when you will need them.

Defaults

Any kind of payment defaults could bring down your credit score. Be it credit card or a personal, car or a home loan.

"These days default on a consumer loan is also taken very seriously," said a senior bank official with Axis Bank's lending department.

While loan defaults could bring down you score by 150-200 points, a credit card default could bring down your score by 100 points.

They depend on the size or value of defaults.

Also say not to "Settlements" especially on your credit cards, the derogatory flag on settlement will impact your credit score.