Home Loan

Last Updated on March 11, 2023 by

Most people take out loans to meet their immediate financial needs. When an individual applies for a home loan, the first thing that a lender looks into is the borrower’s CIBIL score. So, what is the CIBIL score and why is it important? Let’s find out.

What is CIBIL score?

One of the most reliable credit bureaus in India is TransUnion CIBIL. When a person applies for a home loan in India, the first thing that a lender checks before taking a call on the applicant’s loan application is their CIBIL score. Lenders look at credit scores to decide if a borrower is reliable and whether or not they can be trusted with home loan repayment. Most lenders require an applicant to have a credit score of at least 750.

Lenders also look at where you live, how old you are, how long you’ve been working, how stable your income is, etc. to decide if you are eligible. However, a good CIBIL is one of the most crucial factors and can help you get a loan on desirable terms and conditions. 

Why Do Lenders Look at Your Credit Score Before Giving Your a Loan?

Most lenders check your credit score for the following reasons:

Educates Them About Your Credit History

Before granting you a home loan, lenders want to know your credit history, including past loans and credit card obligations. By examining your credit score, they can see how you handled credit payments in the past. If you have been good throughout, your lender will extend you a good home loan deal. 

Helps Them Assess Your Eligibility and Repayment Ability

If you want to get a home loan quickly, you must show that you are eligible. Credit scores are a good indicator of eligibility. Lenders want you to meet a minimum credit score, which should be at least 750. Such a credit score makes loan approval easy.

Tells Lenders If You Have Additional Loans

Home loan applicants with active loans are considered risky. Your credit score determines if you can repay a high-value home loan. Lenders look at your loan-to-value ratio, your monthly income, and how much you spend on credit cards and loan EMIs, all the information they can access about you through your CIBIL score. If your loan-to-value ratio exceeds 80%, you won’t be approved.

Minimum CIBIL Score for a Home Loan

Home loans are secured loans, therefore eligibility depends on credit history and repayment capacity. Most lenders approve home loan applications with a CIBIL score of 750 or higher if the borrower has a good credit history. Applicants with scores below 650-750 may not be approved or if they get approval, they would most likely be required to pay off the loan at high interest rates. So, to get a low-interest rate on a home loan, it’s best to keep your credit score between 650 and 750.

How to Improve Your CIBIL Score?

If you want to improve your credit score, use the tips given below to your best advantage. These tips will help you improve your chances of getting a loan.

Keep an Eye on Your Credit Reports

When you apply for a home loan, the lender will look at your credit score among other things. Therefore, you should regularly check your credit report and scores for errors that lower your credit score. Contact your credit bureau or lender to fix any mistakes.

Make Sure You Have No Outstanding Debts

Before you apply for a home loan, make sure you have paid off all your debts. This includes your loan payments and credit card bills. Having no debt can speed up home loan approval and help you get a low interest rate home loan.

Limit Your Credit Card Usage

If you want to get a home loan, never use up all of your credit. This will help you maintain a good credit score. 

Pay Your Debts and Don’t Go into Default

Paying off your loans and credit cards without missing payments is a quick way to raise your credit score. Also, don’t just pay the minimum on your credit cards. Instead, try to pay off the whole balance. Your chances of getting a home loan will go up if you pay your debts on time and don’t miss any payments.

Don’t Apply for Loans Often

Applying for multiple loans and credit cards at the same time can hurt your credit score. If you do this, the credit risk involved In extending you a loan will go up and your overall credit score will go down. Thus, getting a loan will become difficult.

How To Check Your CIBIL Score Online

Now, you must be wondering how to know my CIBIL score. Here’s how:

Step 1: Visit the official CIBIL website.

Step 2: Click “Get your CIBIL score.”

Step 3: Type your name, email address, and password into the boxes. Add a copy of your ID (passport number, PAN card, Aadhaar or Voter ID). Then, you’ll need to enter your PIN code, date of birth and phone number.

Step 4: Press the “Accept and continue” button.

Step 5: An OTP will be sent to your phone number. Enter the OTP and then click “Continue.”

Step 6: Click “Go to Dashboard” and check your credit score.

Step 7: You will be taken to the myscore.cibil.com site.

Step 8: Click “Member Login.” Once you log in, you can see your CIBIL score.

Why is CIBIL important for loans?

CIBIL, or the Credit Information Bureau (India) Limited, is an important institution for the Indian financial system. It is a credit information company that maintains records of credit-related activities of individuals and companies in India. CIBIL collects and maintains data on loans and credit cards, including the borrower’s credit history and repayment behavior. Banks and other financial institutions use this data to assess the creditworthiness of individuals and businesses when they apply for loans or credit.

The importance of CIBIL for loans cannot be overstated. When a borrower applies for a loan, the lender checks their credit score and report from CIBIL. A good credit score and a positive credit report can increase the borrower’s chances of getting the loan approved. On the other hand, a poor credit score and negative credit report can lead to loan rejection or higher interest rates. Thus, maintaining a good credit score and credit report is essential for getting loans at favorable terms.

Final Thoughts

Learning about CIBIL score and its importance is paramount to getting a home loan quickly and on favorable terms. Lenders do not extend home loans to individuals with low credit scores. We hope the information provided in this article will help you enhance your credit score and get a good home loan deal.