CIBIL is the oldest and most reputed credit bureau assigning credit scores to Indian individuals based on their repayment history, DTI ratio, credit utilisation rate, outstanding balances, credit length, and several other parameters. The CIBIL score ranges from 300 to 900. An ideal CIBIL score for home loan is 700 or above.
The higher the credit score, the better the chances of getting loan approval. Moreover, maintaining a high credit score makes an applicant eligible for more attractive loan options, including reduced interest rates, bigger loan amounts, and extended repayment periods. With a high credit score, an applicant may get up to 90% of the property’s total cost as a home loan.
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Importance of CIBIL Score in a Home Loan Application
Those who want to apply for a home loan while avoiding the chance of rejection must know how vital their CIBIL score is for the loan approval process. The applicant’s CIBIL score is one of the first things lenders check when they receive their loan application.
Applicants with a lower score have high chance of getting their loan rejected. However, lenders prefer moving forward with applications with a score of 700 or above. They make a lending decision and offer the applicant a loan amount and interest rate based on their CIBIL score. Simply put, the applicant’s credit score lets the lender measure the probability of loan default depending on their credit length and past credit behaviour.
Ideal CIBIL Score that Lenders Expect for Home Loans
Home loans involve funds up to several lakhs for loan tenures of 20-25 years. Therefore, lenders go the extra mile to check the applicant’s credit score to keep defaulters away. For most home loan lenders, a score of 700 or above is the minimum requirement. While a score of 800 is ideal for a home loan, anything below 700 is considered a bad score. Having a high credit score of 700 or above means the following:
- The applicants repay all their loan EMIs and credit card bills on time without missing any payments.
- They have maintained a good credit mix in their portfolio
- They borrow judiciously while maintaining a debt-to-income ratio of less than 50%
- They have not applied to multiple loans simultaneously
- They have enough income and savings to cover their expenses and borrow credit only when required
Due to all these reasons, the CIBIL score is of utmost importance to get a home loan with favourable terms and conditions. A home loan eligibility calculator allows an applicant to check how much loan amount they may avail themselves of based on their CIBIL score, DTI ratio, and other parameters.
How do Lenders Use CIBIL Score to Approve Loan Applications?
Earlier, lenders had to do background checks and internal assessments to sanction loans. However, now, with credit reporting and rating, they can access each applicant’s credit information accurately and quickly. CIBIL maintains a database of each individual’s credit-related activities, based on which they assign them a credit score.
If an applicant has a low CIBIL score of less than 700, lenders perceive them as high-risk customers with a history of missed payments. Consequently, they become unwilling to approve loan applications of such applicants. On the other hand, applicants with a high CIBIL score are low-risk customers with a low chance of default. As a result, the lenders approve their loan applications quickly with attractive terms and conditions.
While the minimum CIBIL score required for a home loan is not fixed, a score of 700 or above assures loan approval at better interest rates.
What to do if the CIBIL Score is Low?
Improving the CIBIL score is the best thing one can do to improve their loan eligibility. Here are a few tips to try:
- Always pay credit card bills and loan EMIs on time
- Diversify the credit mix with unsecured and secured loans
- Check the credit report regularly and get any errors rectified quickly
- Avoid applying for several loans at a time
- Keep debt-to-income ratio below 50%
- Do not use more than 30-40% of the available credit limit
700 or above is an ideal CIBIL score for home loan, as it helps get loan approval quickly with an ample loan amount and competitive interest rates. Lenders may approve or reject loan applications based on the applicant’s credit score. Hence, always ensure a decent CIBIL score to easily avail of a home loan and purchase your dream home in real life