A credit card is an expense card which is issued to an individual to pay a merchant for goods and services based on the cardholder’s promise to the financial institution to pay them for the amounts on the other agreed charges. Using a credit card looks very attractive, however, most of the time people forget that while taking credit through such cards you must have good financial backing so that you can return the money on time.
Several studies have shown that consumers likely to spend more money when they pay by credit card. Hence unknowingly, they commit mistakes which led to bad credit score and thus effects in rejection of Home loans. It is always said that a home loan is the biggest liability which an individual takes once in his/her lifetime. After all, it helps the person in achieving their dream of owning a house in a hassle-free manner.
But with such credit card mistakes, a simple loan taking process becomes stressful. So, here are the three common mistakes which a person must avoid if he/she is dreaming to buy a home. Take a look:
Nonpayment of credit card bill
If an individual fails to make payments towards their credit card outstanding bill for a long period of time, then that person is considered as a credit card defaulter and this, in turn, affects the credit score. If a customer fails to make even the minimum payment amount to the credit card company for six months in a row, he/she will be put in the defaulter list.
On the other hand, the bank thinks that if a loan borrower is not able to pay short-term liabilities, then how come they will pay home loan EMI. The credit officer will choose to deny your home loan.
So, those who use credit cards should be very careful and pay their dues on time. Keep in mind that if you have a good credit score, you have high chances of faster loan approval.
High level of credit utilization ratio
The next big mistake which an individual often does is related to credit utilization. Credit utilization is the ratio of your credit card balances to credit limits. Having good credit utilization is important if you want to build and maintain a good credit score. However, if you are an avid credit card user, then it may result in limitation of your home loan. If the credit utilization ratio is more than 30 percent, it is seen as high usage of credit.
According to a home loan expert, when an individual intends to go for a home loan, try to cut down outstanding money and other loans. It will improve eligibility for the home loan and faster sanctions too.
Withdrawing cash through credit card
The worst possible mistake which an individual often does is extracting money through credit card. If an individual withdraws cash using a credit card, then banks or financial institutions may assume that the person is going through a massive cash crunch which ultimately leads to rejection of home loan rejection.
So, always be careful while using credit cards as they can be major spoilers for approval of Home Loan.