The home loan balance transfer facility is one you can rely on when you want better terms and smaller payments. This is because the ideal home loan balance transfer interest rate on offer is usually lower than the rate on your existing loan. As such, your monthly outgo gets reduced, and along with the cost of borrowing.
However, to enjoy the benefits of this facility, you need to qualify for it. This is where your credit score comes into play, and it has a noticeable impact on your experience. Read on to learn more about the role of credit score in home loan balance transfer.
Why is a Credit Score Important for a Home Loan Balance Transfer?
While home loans are secured types of loans, your credit score still plays a significant role. It affects the offer you get and can qualify for, and whether or not you can enjoy easy approval. This is because your credit score is a reflection of your repayment behavior and credit history.
Borrowers must have an excellent credit score to access the best offers on home loan balance transfers. Without the best offers, your savings will be negligible, and it may not make the undertaking worth it.
Ideally, you should have a credit score of 750 or higher if you want to get the best deal. Lenders readily offer low rates on loans to any applicant with such scores. In addition to this, you may even enjoy more flexibility with certain terms. This includes the tenure, the fees, and charges, or any other specifics of the loan.
Simply put, an excellent credit score improves your home loan balance transfer eligibility, and this has many positive financial outcomes. Lower rates, better terms, enhanced flexibility, and easier approval are a few. This is why it is an important part of the home loan balance transfer process.
How a Home Loan Balance Transfer Can Affect Your Credit Score?
Opting for a home loan balance transfer also impacts your credit score, and this can be in both positive and negative ways.
Can Lower the Age of Your Active Credit
Your credit age and total credit history are crucial to calculating your credit score. This is because they establish a history, which is why your oldest credit accounts add to your total credit history. So, when you opt for a balance transfer, an older account gets closed, and a newer one gets added to your history.
This can cause a minor dip in your score until you service the loan and do so consistently enough to build your score back up again.
Can Result in a Hard Inquiry
Lenders check your credit score to assess your creditworthiness as a borrower. This counts as a hard inquiry, which has a temporary, but noticeable, impact on your credit score. This is why it is important that you meet all the home loan balance transfer eligibility requirements before you apply. Repeat inquiries will cause a significant dip, which will only make it harder to get approval in the future.
How a Balance Transfer can Help Improve Your Credit Score?
Besides the potential to negatively impact your credit score, a home loan balance transfer can also help you increase it. Here’s how.
Can Ensure Repayment Consistency
With a home loan balance transfer, you can opt to either reduce the tenure or the EMI amount. When you choose the latter, the tenure remains the same but your monthly outgo gets reduced. This change can be crucial to ensuring that you never miss a payment, especially if you are dealing with some kind of emergency.
The key benefit here is that the facility allows you to build and maintain your repayment history, which does add to your score. Also, it helps avoid defaults, which not only reduce your score but also attract penalties.
Can Help Lower Your Credit Utilisation Ratio Quickly
A high credit utilization ratio will negatively impact your credit score, especially if it stays that way for a long time. Home loans are long-term commitments, but the balance transfer facility allows you to revisit your terms for better efficiency.
In the instance that you get a significantly lower home loan balance transfer interest rate, you can opt to reduce your tenure. Doing so helps you repay the loan quicker, and this can boost your credit score.
Can Showcase Increased Experience with Credit
Your exposure to credit is a factor that impacts your credit score. Having experience with more than one type of loan is key to building this exposure. When you opt for a home loan balance transfer, you add to your list of secured loan accounts, and this can help.
Successfully managing different types of loans is key to building and maintaining your credit score.
Keeping these factors in mind can help you decide the right time to get a home loan balance transfer. Make sure to evaluate all the parameters, such as interest rates, processing charges, and other costs before finalizing a lender.
Note that a home loan balance transfer is a smart move only when the offered rate of interest is lower than the existing one. Access deals from leading issuers with minimal documentation and secure a competitive home loan balance transfer interest rate with ease.
FAQs on the Impact of Credit Scores on Home Loan Balance Transfer
Will a home loan balance transfer negatively impact my credit score?
The hard inquiry that occurs due to the home loan balance transfer can have a negative impact on your credit score.
Can I get lower interest rates on my home loan if I improve my credit score?
Yes. With a credit score of 750 and above, you can get a low home loan balance transfer interest rate from leading banks or NBFCs.
How long does a home loan balance transfer take?
The loan processing, approval, and disbursal processes can take a few days, depending on the lender. However, leading lenders allow you to start the process online, and this can save time.
How do I know if a home loan balance transfer is the right step?
The easiest way to assess if the balance transfer is the right choice is to use the home loan balance transfer calculator to estimate the savings. Accordingly, you can do a thorough cost-benefit analysis and decide if the savings are worth the switch.