A mortgage loan, also known as a loan against property, is a secured loan provided by housing finance companies, NBFCs, and banks against commercial or residential property. Such loans are a preferable option for those looking to get an interest rate lower than those of a business loan or personal loan. Any individual having a pre-owned property can apply for loan against property. This loan can be used for various reasons such as setting up a business, covering medical expenses, paying for a wedding, and so on.
Now, such loan amounts can often be quite high in value, which can have a huge impact on a borrower’s credit score. The way in which the loan’s repayment is handled will determine whether your credit score improves or deteriorates.
Take a look at how a mortgage loan can have a major impact on your credit score:
- Paying off the loan on time improves creditworthiness
Financial institutions consider the creditworthiness of individuals applying for loans. This is to understand whether the applicant will be diligent in paying off the monthly instalments of their loan. This is why it is so important to make sure all your payments are cleared on time. Any defaults are a negative sign for a lender reviewing your application for a loan against property.
- High-value loans help in bolstering credit scores
Since a loan against property is taken against a valuable asset, the loan amount can go quite high. This can be a great way to improve your credit score, as the credit amount contributes to about 25% of the CIBIL record. Therefore, if you have applied for a high loan amount and repay the loan on time, it can give a good boost to your credit score.
- Varied types of loans add value to credit history
A credit score is not just set based on the loan amounts but even the types of loans that an individual has taken. Your credit score is updated after considering both secured as well as unsecured loans. So, if you have taken personal loans in the past, the loan against property will balance out the other unsecured loans. Do note that your repayment tenure and type of credit make up for 25% of your credit score.
- Taking a loan for an appreciating asset will benefit your credit score
The asset that you place as collateral to get a loan against property will also have an impact on your credit score. For instance, a real estate property is an asset that appreciates over time. However, an asset such as a vehicle is going to depreciate over time. Since an appreciating asset grows in value, it can have a positive impact on your CIBIL score.
These are a few ways in which a mortgage loan can affect your credit score. Maintaining a good credit record can be used to your advantage as lenders can offer you a lower loan against property interest rate. You should also make use of a loan against property calculator to make sure the loan amount can be repaid with ease.