If you have just bought a new home on Loan, chances are that you are over the moon and deservedly so! It is likely that you had worked hard to save money and are financially conscientious. This means that you have made the effort to keep your credit score high. But if you are expecting that your score will get a further boost because of your loan, you are in for a surprise. A new home loan will have brought down your CIBIL points. Here is why.

A measure of your financial health

You are already aware of the fact that a high score has worked in your favour in getting your home loan application through and even fetched you an interest rate that you are happy with. But like any other credit application, your bank will have referred to your credit score as a part of its credit assessment process. This is mandatory for all lenders as per the diktat of the Reserve Bank of India, the apex bank of the nation.

A hard inquiry dents your score

Each time you apply for a fresh line of credit, the concerned bank refers to your credit records to check how credit worthy you are. A good score is considered a barometer of good financial health and is likely to see your application go through. However, every time a lender carries out a CIBIL score check, it gets recorded as a “hard inquiry”.

Each hard inquiry, as opposed to a soft inquiry (when you apply for your own CIBIL report) brings down your score by a tad. This is the reason why a new home loan will bring down your score rather than boosting it, immediately after it is sanctioned. The good news however is that it is a temporary phenomenon, and your score is restored to its original after a few days when you resume your repayment schedule.

Therefore, there is no reason for you to get overly worried when you find that your score has taken a dip by a few points, right after you have bought a new home with the help of a loan. However here are a few things you can do to ensure that your CIBIL score comes back to normal before and after having applied for a loan.

Before applying for a home loan:

Do not apply to multiple lenders:

It is imperative to carry out thorough research before you make an application for any kind of credit, especially a home loan. With numerous resources and aggregator tools available on the internet, it is easy carry out most of this research online. Therefore, conduct a thorough comparison of all the possible lenders you wish to apply to, before you decide which is the lender that is most appropriate and apply to only the one you have selected after careful consideration. Application to several lenders in pursuit of the best home loan interest rate will result in multiple hard inquiries and bring your CIBIL points down considerably.

AFTER a home loan has been sanctioned:

Do not apply for other lines of credit immediately

Once you have purchased a new home on loan, it is natural to feel a huge sense of relief. But do bear in mind that with a home loan you have now entered into a long term financial commitment, for a decade or more. Therefore, be prudent about making any further credit applications at least in the near term. In fact, it is best not to apply for any other fresh line of credit within a year of having purchased a home on loan. This will keep your debt burden under control and keep your score from taking a further hit because of hard inquiries as a result of fresh credit applications.

A home loan is a great way to maintain good credit health once you start making regular repayments on it over the long term. Fulfilling your commitment over the long term will boost your score eventually and will open doors of lenders for you at a later date when you are in need of credit. In conclusion thus, it is fair to say a dip in your CIBIL points after a CIBIL score check conducted right after a loan purchase, should not be reason for you to lose sleep over!

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