If you’re planning on taking a home loan, you must be looking for ways to get loan approval in the first go. While different lenders have different ways to assess your loan candidature, you should know that your CIBIL score plays a crucial role in getting your application approved.
What is a CIBIL/credit score or credit report?
A Credit Report is provided by existing four credit bureaus — TransUnion CIBIL (Credit Information Bureau of India Limited), Experian, Equifax and CRIF High Mark. The most popular among these four bureaus is CIBIL.
A CIBIL score is a 3-digit number that ranges between 300 and 900, that summarises your credit history. It is based on the information in your CIBIL report. This includes all secured and/or unsecured loans and any other debts that you may have or had.
A credit report will include the following information:
- Record of credit availed by you.
- Record of repaying loans and credit card bills.
- Late payments and/or defaults on past credit held by you.
- Loans and credit cards that you presently hold.
- Recent information about loan and credit card applications submitted by you.
Does CIBIL Score Affect Home Loan Eligibility
Yes, CIBIL Score affects your home loan eligibility as the lenders use your CIBIL score to determine whether you are eligible for home loan or not. When you submit your home loan application, the bank will first check your credit score and credit history. If your credit score is low and you have a bad credit history, it will most likely reject your application. However, if you have a good CIBIL score, your home loan application will be processed quicker. While there is no universal score, every bank has a minimum CIBIL score which acts as a cut-off or indicator to accept or reject applications. If your score is above 750, you have a pretty high chance of getting your loan application approved but if it is low, for example 450, then your chances of loan approval is also negligible.
What CIBIL Score is Good for Home Loan?
The ideal CIBIL score for home loan is 750 or above. Such a score is excellent and keeps your eligibility and approval chances high. It speaks to your diligence and financial readiness.
Few more Benefits of a good CIBIL score for home loan:
- Quick approval
- Larger loan
- Low interest rate
- Flexible tenure
How to Improve your CIBIL Score for a Home Loan?
- Pay your Dues on Time: You must ensure that you have not missed your current EMI or delayed your Credit Card payment. In order to avoid such mistakes, you can set monthly reminders for your payments. With timely payments, your CIBIL Score will definitely improve and will present you as a responsible borrower.
- Repay your debts without defaulting
A sure-shot way to improve your credit score is to repay your debts without ever defaulting. Ensure you never miss your EMI payments and avoid paying them late. Also, try not to just pay the minimum amount necessary for your credit card debts and pay off the entire amount before the new credit cycle begins. If the lender sees you defaulting on any debt, your loan could be rejected. - Don’t utilize your entire credit limit
Another way to improve your credit score for home loan is to ensure you never use up your entire credit limit. Lower utilization of credit for long periods will show that you are capable of handling extra credit thus making it easier for you to get home loan approval. - Maintain a Healthy Credit Mix: To improve your CIBIL Score for a home loan it is advisable that you maintain a healthy credit mix i.e., having the right combination of secured and unsecured loans. Having too many unsecured loans can negatively impact your CIBIL Score.
- Check your Credit Report Frequently: One of the easiest ways to improve your CIBIL Score is to keep regular track of your credit report as it will eliminate the chances of any incorrect information being recorded in the report relating to your payments, EMIs and more.
Conclusion
A good credit score is very important for a home loan, especially if you want to get it at lower interest rates. Banks may either reject an application or lend home loans at higher interest rates to those who have a poor credit score. Hence, always ensure to have a good credit score to avail home loans easily and make your dream home a reality.
