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Do you know, nearly 68% of urban Indians today rely on home loans to purchase their dream house? But, most of them are not so familiar with the Home Loan procedure and often face unforeseen loan rejections. In the Home Loan approval process, there are several eligibility factors that you have to meet to fulfil the lender’s requirements, such as your income, type of profession, income stability, and many more. Similarly, one of the most important key eligibility factors is your CIBIL score. Bank managers check your past credit history and repayment track records to decide whether they would accept your loan application or not—and if accepted, then what would be the rate of interest. So, as a borrower, if you’re planning to avail a home loan and wondering how much CIBIL score is required for home loan, then this article is just for you.
In this blog, we’ll explain the CIBIL score needed for a home loan and how it impacts both the loan amount and the interest rate. So, let’s begin by understanding the basics of a credit score and its role in the home loan approval process.
Why is CIBIL Score important in the home loan approval process?
Typically, a Home Loan comes with a long-term financial commitment for an individual, that’s why it’s also crucial for the bank manager to evaluate the applicant’s eligibility.
When you apply for a home loan, your income and employment stability are used to assess your loan repayment capacity, where as your credit history provides deep insights about your financial discipline.
In this credit risk assessment process, a credit bureau acts like a library for lenders that maintains credit records and repayment history of every Indian borrower based on the data submitted by the lenders themselves.
In India, there are four major credit bureaus currently operating – TransUnion CIBIL, Experian, Equifax, and CRIF Highmark – they keep track of all your past and present credit-related transactions and generate a credit score for you.
Among all the credit bureaus, the credit score generated by TransUnion CIBIL is the most commonly used by bank managers during the credit underwriting process. In simple terms, CIBIL score is a 3-digit numeric indicator of your creditworthiness that is evaluated based on your past and current obligations, credit utilisation, loan repayment history, and other credit behaviour. At this point, the most important question arises: how much CIBIL score should you have to secure a Home Loan hassle-free? Let’s talk about this…
How much CIBIL score is required for Home Loan?
Like any other credit score, the CIBIL score also has a range between 300-900, whereas having a credit score around 750 and above is considered good enough, which represents your responsible credit behaviour. However, there is no standard CIBIL score for Home Loan eligibility. Different lenders have their own credit score requirements for their Home Loan applicants.
As Home Loan is a secured loan backed by the property itself, that’s why lenders mostly consider those borrowers who have a CIBIL score in the range between 650-750 and above. If your CIBIL score is 750 and above, it is considered excellent and makes you eligible to secure a Home Loan from leading public and private sector banks at the lowest interest rates.
If your CIBIL score is within the range between 700-749, it is also treated as good enough, which helps you to secure your Home loan from any renowned private banks at a comparative interest rate.
And, if your CIBIL score falls between 650-699, you should approach to the private banks and NBFCs, and other housing finance companies, they will consider your application in exchange for a high rate of interest and less favourable terms. A CIBIL score below 650 depicts your risky credit profile, that makes bank managers reluctant to accept your loan application.
Please be noted, in all the above-mentioned cases, your CIBIL score should be error-free, without any default status (such as overdue, Written-off, Suit Filed, Wilful Default, Settled, etc), and there should be no recent EMI bounces on your current ongoing loan.
Effect of CIBIL score on Home Loan:
1. Home Loan eligibility assessment:
Now, you have an idea, how a CIBIL score effects on your Home Loan approval process. If you have a high CIBIL score and strong credit history, it automatically enhances the loan approval chances. On the other hand, a poor credit score and default track record can lead to rejection, regardless of having a stable income source and proper property documents.
2.Determining the rate of interest:
A slight difference in your CIBIL score can influence the interest rate on your Home Loan. If you have a CIBIL score of 750 and above, it gives you more negotiating power for a comparatively low interest rate. Even if you get a 0.5% discount on the interest rate, that saves your significant amount of interest payment over the long run.
Consequently, a poor CIBIL score may force you to accept a higher interest rate, which directly increases your monthly EMI and the overall cost of the loan. This also raises the risk of future defaults due to increased financial burden.
3. Loan sanctioned amount and repayment terms:
When you apply for a Home Loan, the bank managers usually conduct a comprehensive background check about your credit score, your current income, and other financial aspects to determine the loan amount. If you have an excellent credit record, lenders may offer 80–90% of the property’s value as a loan—that means a high loan-to-value (LTV) ratio. A high credit score also helps to get a longer tenure, which ensures easy repayments.
On the other side, if you have a loan CIBIL score, or a history of loan defaults, in that case, the lenders may not agree to sanction the entire loan amount that you applied for. Instead, they can approve 60-70% of the property value, and the rest you have to bear with your own savings.
4. Faster approval process:
Bank manages always looks for a trustworthy and promising borrower with a strong credit profile. If you have a high CIBIL score of around 750-800, obviously, it will help you get faster home loan approval.
Check your CIBIL score and improve your chances of getting Home Loan approval:
- Check your current CIBIL score from the TransUnion CIBIL official website and identify your current situation.
- If your Home Loan get rejected due to a low CIBIL score, don’t worry! You can improve your credit score by simply being financially more disciplined. Follow the tips below and work hard to accomplish your dream.
- Repay your loan EMIs timely.
- Maintain a low credit utilisation ratio, specifically below 30% of the credit limit.
- Repay your existing loan and reduce the excess debt burden.
- Avoid multiple enquiries for loans and credit cards.
- If you find any errors in your CIBIL report, rectify them immediately and rebuild your credit score accordingly.
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