What is a good CIBIL™ Score for Home Loan?

One of the greatest dreams of any individual is to have their own dream house. Many banks and financial institutions help you realize your dream by granting you home loans. However, your credit score plays a significant factor in being creditworthy for this home loan. This credit score is assessed by financial institutions based on your earnings, age, expenses, savings, work profile, financial capability, repayment history of loans, and other dues. Financial Institutions look into your repayment history to judge their financial discipline. This factor makes them understand your intent and willingness to repay your home loan.

Now, you would have understood the importance of credit score to procure loans from any financial institution. Lenders try to find your entire credit history before deciding on your application's fate. One of the significant hurdles that many of you might face while getting a home loan with any leading financial institution would be a low credit score.

This article discusses the minimum credit score for housing loans and how to improve your scores. The following are the pointers that need to be considered.

Understanding the Credit Score for a Home Loan

credit score is a three-digit number that summarizes your entire credit history. It ranges between 300 and 900 and gives a complete outline of your credit accounts, repayment history, and outstanding debts and loans.

A high credit score means that you have successfully managed your finances. A lower credit score indicates that there is always a scope for improvement. However, a credit score of 750 or above will help you get home loans from leading financial institutions.

Credit Score Factors That Affect Home Loans

Your credit score plays a significant role in sanctioning your loan application. Let's explore the factors that influence it.

Eligibility Criteria:

Many major banks or financial institutions keep a credit score of 750 and above as a criterion for granting home loans. A low credit score is considered a red flag or a sign of financial instability to major financial institutions. This will significantly affect your home loan process.

Interest Rate:

Your credit score also affects the rate of interest on your home loans. The lower the credit score, the higher the rate of interest. A higher credit score makes you eligible for a competitive interest rate on home loans. It gives you an upper hand in negotiations with financial institutions.

Loan Amount:

The process for the loan sanction is simple. You will be granted the loan amount you requested if you have a higher credit score. You will be given more than you asked for. On the contrary, a lower credit score will deter you from the loan amount you wished for.

Faster Approval:

A higher credit score will help your loan application pass swiftly. The reason is that banks look into the individual's credibility before granting any loan. This credibility is built on the base of your financial track record. A higher credit score and responsible financial handling will help you quickly complete your loan process.

Credit Score Requirement for Home Loans

The four leading credit bureaus in India—TransUnion CIBIL, Experian, Equifax, and CRIF High Mark—have provided a credit score. Log into CreditMantri to check your Credit Score for FREE. A credit score is a three-digit number that ranges between 300 and 900. The closer the score to 900, the better it is.

When you are applying for a Home Loan, banks check the creditworthiness of the individual while granting them a loan. The minimum credit score required to get your home loans approved by banks differs. However, a credit score of 750 and above is generally considered a safe zone to get your Home Loan application processed by financial institutions.

It is good practice to avoid multiple loan applications at the same time. Every application you send to the lender will affect your credit score. Your credit report provides the necessary information for financial institutions to grant home loans.

Another important criterion that financial institutions consider is your current and previous employment history. They investigate your repayment capability before granting you loans.

Improving Credit Scores for Home Loans

Pay Bills on Time:

Paying your bills on time is one of the main criteria for improving your credit score. You need to pay your bills on time to maintain a sound financial track record besides boosting your credit score. You can also set the Auto Debit feature on your bank accounts to avoid late payments.

Reduce Credit Card Balances:

Your credit utilization, the amount of credit you use, impacts your credit score. Keeping this credit utilization under 30% will help you improve your score. Try to pay high-interest credit cards. Transfer balances to lower-interest accounts.

Rectify Your Credit Report:

You need to consistently check your credit report. If there are any errors, rectify them immediately with the credit reporting agency.

Maintain Older Credit Accounts:

The longer your credit history, the higher your credit score. Keeping older accounts open can improve your credit score, as this shows a longer track record of responsible credit usage.

Diversified Credit:

It is good practice to maintain diversified credit, as it can boost your credit score. This could include credit cards, loans, and mortgages. It shows the financial institution that you are good at maintaining diversified credit.

Pay Off Older Debt:

If you have any debts that are pending, it is important to resolve them as soon as possible to have a positive impact on your credit score.

Manage Credit Wisely:

Simply using your credit wisely, like making small purchases and paying them immediately, will positively impact your credit scores.

Improving your credit score is time-consuming. You need to be patient and keep following the simple best practices mentioned above. These steps will significantly boost your credit score and, in return, get your desired home loan sanctioned on favorable terms.

Simple Steps to Apply for a Home Loan

The following points must be considered while applying for a home loan.

Check Your Credit Score:

Check your credit score online. If your score is low, your loan application will likely be rejected.

Rectify your Credit Repo Errors:

If you have any errors in your Credit Report, rectify them immediately. In case of any discrepancies in the Credit Report, the chances of your loan being rejected are higher.

Avoid Applying with Multiple Lenders:

It is highly recommended that you do not apply for loans from multiple lenders. Each application is considered a hard inquiry as it considerably reduces your credit scores.

When an individual applies for a home loan, the property remains a mortgage with the bank until the tenure of the loan or until the entire payment is made, whichever is earlier. In other words, a home loan is a secured loan, and the bank or financial institution has the right to forfeit the property in case of negligence on the part of the customer.

Conclusion

Your Credit Score is crucial in acquiring home loans on favorable terms and conditions. Lenders rely on your credit score to determine your financial reliability. You need to maintain a good payment history, maintain credit utilization under 30%, manage existing debts, and increase your chances towards favorable terms and conditions on home loans. With time and strict financial discipline, you can boost your credit score and open yourself to loan opportunities on favorable terms and conditions.

FAQs

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