Taking and lending loans is a huge part of today's financial landscape. People might require a loan for a variety of reasons, one of them being their desire to purchase property. In this case, people often look for banks, other financial firms, and institutions that provide good home loans.

However, people must meet certain criteria to be eligible for receiving a loan. The first thing you must consider if you plan to take a loan is having a good CIBIL score. It is a crucial aspect that lenders consider while processing your application. When someone lends a large amount of money, they naturally want to be assured of the borrower's ability to repay the amount and do so on time. A person's CIBIL score reflects this ability. A good CIBIL score shows that the borrower is financially responsible and can be entrusted with much money.

Since the CIBIL score is such a big factor in obtaining a home loan, one must clearly understand what exactly is CIBIL score is. Generated by TransUnion CIBIL, one of India's leading credit bureaus, CIBIL score, also commonly known as 'credit score', is a 3-digit number that lets lenders know a person's credit history, thus revealing how likely they are to repay their debts on time.

Ranging between 300 and 900, your credit score is the deciding factor for your eligibility for a loan. It is like a tool for lenders, including banks and other financial institutions, to assess the risk of lending money to a borrower.

Your credit records are used to generate your score. If you have maintained a higher credit score, your chances to get a loan also increase whereas a low credit score reflects poor financial behaviour in the past and deters loan givers from lending you money. So, your credit score is like a record of all your credit history. A higher CIBIL score makes you eligible for a loan and improves your chances of getting your credit card approved.

What is a Good CIBIL score for Home Loans?

While each bank requires a different score for deciding home loan eligibility, credit score is generally broken down into three categories - Poor, Fair and Good. Let us see the range of all these categories.

1. Poor Credit Score: If your CIBIL score ranges between 300 and 549, it is considered poor. Having a poor credit score greatly reduces your chances of loan approval. If approved, the interest rates would be very high.

2. Fair Credit Score: A Credit score ranging between 550 and 600 is fair and means that loan approval is possible.

3. Good Credit Score: If your CIBIL score is calculated to be anywhere between 650 to 749, it is considered good and will make it extremely easy for you to avail of loans, and that too on favourable rates of interest.

All those willing to obtain a home loan are advised to maintain a credit score between 700 and 900. Even though most lenders have different CIBIL score requirements, this is considered to be a good score by almost all of them. Maintaining such a high credit score increases the chances of home loan approval.

Benefits of Having a Good CIBIL Score

There are many benefits associated with having and maintaining a good CIBIL score. Here is a list of advantages you get if you have a good credit score:

1. Reflects Responsible Financial Behavior: When you have a credit score between 650 and 900, it shows the lenders that you have a good credit history and pay your dues on time.

2. Getting a Bigger Loan: A high credit score builds lenders' trust in you, making it easier to procure a larger loan amount.

3. Lower Rates of Interest: Most banks sanction loans at comparatively lower interest rates to consumers with higher credit scores. Usually, a CIBIL score that is 700 or above lets you negotiate lower interest rates.

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How Important Is Your CIBIL Score for Home Loans?

Whenever you apply for a home loan, lenders will always check your CIBIL score. This is because they wish to gauge your financial stability and assess your ability to repay the loan. Here is why it is imperative to maintain a good CIBIL score, especially if you are interested in getting a home loan:

1. Checking Your Eligibility: Not everyone's application for a home loan is considered. Banks and other financial institutions often have a minimum CIBIL score requirement to consider your home loan application. While this minimum requirement can differ from one bank to the other, most have a lower limit set to at least 650.

2. Impact on Interest Rates: A good credit score not only impacts your eligibility for a home loan but also helps you get the loan at more favourable interest rates. If your CIBIL score is above 750, you will likely get the loan at comparatively lower interest rates.

3. Amount Sanctioned: Since a good credit score shows that you are financially responsible and have a good credit history, lenders will trust you more and offer you a higher amount for the loan. This is desirable, especially in the case of home loans, since property is often really expensive.

4. Tenure of Loan: Loan tenure refers to the time the borrower is given to repay the loan and the interest. A good CIBIL score will often afford you a longer tenure, making it easier to repay the loan.

Read More:: CIBIL Score Role in Loan Application Process

How Much Credit Score Is Required for Home Loan?

If you are planning to apply for a home loan you must be wondering how much CIBIL score required for home loan. There is no specific number that applies to all lenders. Each bank or financial institution has its own CIBIL score requirements for sanctioning a home loan. Even though the credit score requirement for home loans varies from bank to bank, a minimum of 650 is required by most of them to consider your application. Suppose your credit score ranges anywhere between 650 and 750. In that case, you can consider yourself in a good place and be assured of your loan application being approved, given you meet all other criteria.

Such a score will let the banks know that your credit behaviour in the past has been responsible and that they can be assured of repayment promptly. A higher credit score builds trust in the lenders and lets them know their money is safe.

If your CIBIL score is lower than 550, your chances of getting your loan application are reduced. You need to improve your CIBIL score to be eligible for a home loan and get one at reasonable interest rates that will make repayment easier for you.

Read More:: How Students with No Income Can Get a Credit Card

How to Improve Credit Score to get a Home Loan?

If you want to buy the property and need a home loan but have a poor credit score, you can work on it to improve the CIBIL score and bring it within a higher range.

1. Avoid Late Payments: One thing that most negatively impacts your credit score is late payments of EMIs and Credit Card bills. So, ensure that you make timely payments to improve your CIBIL score.

2. Minimize Use of Credit: As discussed earlier, a higher utilization of total available credit reflects that you are heavily credit-dependent. Try keeping your use of credit low. This would positively impact your credit score and help you bring it from poor to good.

3. Do Not Take Too Many Loans: Applying for many loans shows poorly in your CIR. Avoid taking unnecessary loans frequently. Apply for credit only when you absolutely need it, and avoid making too many applications in a short span of time.

4. Take a Variety of Loans: Having a healthy mix of secured and unsecured loans along with credit cards is a great thing that you can do to improve your credit score. Adding variety to your credit responsibly helps you get a higher CIBIL score.

5. Check Your Credit Report: If you already adhere to all the points mentioned above, ensure there are no discrepancies in your credit report. If you find any, get them rectified as soon as possible.

Read More:: Is 720 a Good CIBIL Score?

How to Get a Home Loan with a Low CIBIL Score?

If you have a low CIBIL score, getting your loan application approved becomes difficult. However, it is not completely impossible. Even though there are added challenges, it may still be possible for lenders to consider your application. Here's how:

1. Apply for a Combined Home Loan: If your credit score is poor but you have a spouse or other family member with a good CIBIL score, make them a co-applicant. Applying for a joint loan with them will improve your chances of approval.

2. Provide a Higher Down Payment: One way of obtaining a home loan despite having a poor credit score is to provide the lender with a larger sum as a down payment. This will increase the chances of approval as it lowers the loan amount and reduces the risk for the lender.

3. Having a Guarantor: If you have someone who agrees to repay the loan in case you fail to do so, the lender might consider your application even with a poor credit score. This brings them added security and doubly assures them of repayment, making it easier for them to trust you with their money.

4. Look Beyond Banks: Obtaining a home loan from most major banks is difficult if you have a poor CIBIL Score. In such a case, NBFCs and HFCs are better options for you. Non-Banking Financial Companies (NBFCs) or Housing Finance Companies (HFCs) often offer loans to individuals with lower credit scores. But do keep in mind that they usually provide loans at higher interest rates.

Read More:: What is the Use of CIBIL Score?

Conclusion

Your eligibility for a home loan is highly dependent upon your CIBIL score. Having a good and high credit score makes you eligible to avail of a home loan. It brings additional benefits such as favourable loan terms, higher loan amounts, lower interest rates and better loan tenure. Try keeping your credit score above 700 so that you do not have to face any difficulties throughout your home loan process. It is a good habit to understand how your CIBIL score is calculated, check it regularly and take steps to improve it if it is on the lower side. This way, you can ensure that your home loan process is smooth and easy.

Frequently Asked Questions (FAQs)

Does CIBIL Score matter for a home loan?

Yes, all lenders review your credit score before approving your home loan application to check your creditworthiness and repayment ability. You must have a good CIBIL score to obtain a home loan.

How much credit score required for a home loan?

While there is not one specific number, having a CIBIL score ranging from 700 or higher is generally advised. A higher credit score means higher chances of lenders approving your application.

Can I get a home loan if my CIBIL score is below 650?

While most lenders require a CIBIL score of at least 650 for sanctioning a home loan, getting a home loan with a lower score is not impossible. You can explore options with NBFCs and HFCs. However, remember that you might face higher interest rates and a lower loan amount. You can also apply with a co-applicant who has a good credit score. This improves your chances of getting your loan approved.

How to get a home loan at low interest rates?

One of the best ways of getting a home loan with low interest rates and a large loan amount is to maintain a good CIBIL score (700 or higher). This proves you as financially responsible and increases your creditworthiness.

Do all lenders have the same CIBIL score requirements for home loans?

No. Each bank and/or financial institution has its credit score requirements for deciding home loan eligibility. While most of them require a minimum score of 650, certain institutions might approve your application even if your score is below that.