How Credit Card Payments Affect Your Home Loans

By OneCard   |   June 23, 2024

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Home¬≠ loans are a popular way to secure your dream house. And credit card payments are a popular choice to pay off your loans. However, unde¬≠rstanding a credit card‚Äôs impact, or more specifically, credit card debt‚Äôs impact on securing low-intere¬≠st home loans, is crucial. Lenders examine several aspects of your financial history before approving a loan application, like age, repayment capacity, and credit score, among others. Let’s explore¬≠ how credit cards and credit card debt influence¬≠ your ability to obtain a home loan and some measures that can improve your chances.

Factors Influencing Home Loan Eligibility

Lenders scrutinise various factors when evaluating home loan applications, including your credit card payment history. Some key factors that influence your eligibility for a home loan include:

1. Credit Score

A credit score is one of the first factors card issuers consider when checking your eligibility for a loan. In India, a credit score is a three-digit number ranging from 300 to 900. Usually, credit scores ranging from 700 to 900 are deemed good, raising your chances of securing a low-interest loan.

2. Payment History

Your payment history reflects your aptitude for responsible financial management. Lenders will closely examine your payment history to see if you can make payments on time, including loan instalments, utility bills, credit card payments, etc. Consequently, the more timely your payments are, the better a reflection of your financial reliability and consistency.

3. Credit Utilisation Ratio

Your credit utilisation ratio is the percentage of credit currently being used against the total available credit. A lower credit utilisation ratio indicates that you manage your credit responsibly. This, in turn, positively impacts your credit score and improves your eligibility for a home loan.

4. Debt-to-Income Ratio (DTI)

In simple terms, the DTI ratio is a comparison of your monthly debt payments to your gross monthly income. In addition to debt obligations like student loans and vehicle loans, credit card payments contribute to your overall DTI ratio. Typically, a lower DTI ratio suggests that you have sufficient income to manage debt obligations, making you more likely to qualify for a home loan.

ALSO READ: Credit Card Loan - Apply for Loan Against Credit Card

How Credit Card Debt Affects Home Loan Eligibility

To understand the nuanced relationship between credit card payments and home loans, you need to learn about some key factors:

1. Impact of Credit Card Usage on Home Loan Approval

A well-maintained credit history is an indication that you are financially disciplined and reliable. Consequently, your credit card payment history becomes an indispensable tool that can strengthen your home loan application.

2. Maintaining Low Credit Card Balances

In addition to low credit card charges, payments must be made on time. Additionally, this helps to maintain a healthy credit utilisation ratio.

3. Managing Credit Card Debt for Better Home Loan Offers

Effectively managing your credit card debt is key to increasing your chances of securing a home loan. Check out the following tips for managing credit card debt:

  • Be¬≠ sure to pay more than the minimum re¬≠quired amount every month. This will considerably reduce your outstanding debt faster.
  • Create¬≠ a realistic budget and stick to it to preve¬≠nt overspending and accumulating additional debt.
  • Use¬≠ windfalls like tax refunds or bonuses to pay down your cre¬≠dit card balances and improve your debt-to-income¬≠ ratio.
  • Take¬≠ advantage of balance transfer offe¬≠rs to move credit card balances with high inte¬≠rest rates to cards with low introductory rates, thus saving¬≠ you money on interest charge¬≠s.

ALSO READ: What is Credit Card Debt Trap and How to Avoid It?

Balancing Credit Card Payments and Home Loan Goals

Striking a balance between credit card payments and saving for a down payment is essential. The following measures can help you get there faster.:

  • Determine a timeline for both long-term and short-term financial goals.
  • Create a comprehensive budget that outlines your income, expenses, and targeted savings on a monthly basis.
  • Focus on paying off high-interest debt first.
  • Set up automatic transfers from your company salary account to your home loan savings account.
  • Restrict and limit your expenditures when using your credit card. In fact, any unnecessary expenses are best avoided.
  • Monitor your credit utilisation ratio and try maintaining it on the lower end.
  • Regularly review your credit report. You can acquire a copy of your report from major credit bureaus and review it for any discrepancies.

Responsible­ usage of credit cards and managing debt efficiently increase your chances of securing favourable terms on home loans. You can take the above mentioned steps to protect your credit score, manage your debt-to-income ratio, and build savings. Most importantly, make­ timely credit card payments to improve­ your odds of getting loan approval when buying a home. Over time, responsible financial habits can go a long way in helping you achieve all your financial aspirations, one swipe at a time.

**Disclaimer: The information provided in this webpage does not, and is not intended to, constitute any kind of advice; instead, all the information available here is for general informational purposes only. FPL Technologies Private Limited and the author shall not be responsible for any direct/indirect/damages/loss incurred by the reader for making any decision based on the contents and information. Please consult your advisor before making any decision.