Impact of CIBIL Score on a Home Loan: Overview
Home Loans are a long-term commitment, which is why borrowers need to meet certain eligibility parameters to ensure repayment without defaulting. One of these parameters is the credit or CIBIL score. CIBIL stands for the Credit Information Bureau (India) Limited, which collates all credit-related information and subsequent credit reports of borrowers. Ranging from 300 to 900, the 3-digit CIBIL score indicates the borrower’s creditworthiness. It is assigned based on an individual’s past credit behaviour.
Factors that Affect CIBIL Score for Home Loan
Here are some of the factors that affect your CIBIL score:
Credit History
The credit bureau considers your credit history, that is, how well you have managed to repay debts, such as loans and credit cards, in the past.
Outstanding Dues
When you have unpaid outstanding dues, it reflects in your credit report and affects your credit score negatively. Even if the amount is small, paying off is advisable.
Credit Utilisation Ratio
The credit utilisation ratio or credit utilisation rate, is defined as the ratio of your credit card expenses to the total credit card limit. Typically, a low ratio is considered ideal, indicating that the borrower can manage their credit responsibilities diligently.
Mix of Credit
A good mix of both secured and unsecured borrowings is highly desirable since too many unsecured loans in the borrower’s portfolio may lead you to you having a low credit score.
Multiple Loan Enquiries
Whenever you apply for credit, your credit score and history are assessed. Multiple Home Loan queries can give out an impression of desperation for credit, thus affecting the credit score negatively.
Also Read: What Factors Affect Your CIBIL Score?
CIBIL Score Required for a Home Loan Application
A low credit score, typically below 625, indicates irregularities in the repayment of previous credits. Ideally, a CIBIL score of 750 or above is required to increase your chances of getting approved for a Home Loan.
How Does CIBIL Score Affect Home Loan Approvals?
Here are two scenarios explaining how CIBIL score can affect your Home Loan application:
1. Housing Loan Application Rejection
A CIBIL score below 625, coupled with other factors, such as unsatisfactory income and outstanding debts, can lead to the rejection of a Home Loan application.
2. Home Loan Approvals at Unfavorable Terms
The interest rate and repayment tenor are the two main determinants of a housing loan EMI, apart from the loan amount. These factors determine the feasibility of a loan. With a credit score between 650-750, you can still get your Home Loan application approved. However, the terms of the loan can be unfavourable as compared to borrowers with a score of 750 and above.
Thus, your CIBIL score can impact your Home Loan application. It is advisable that you review your credit report and maintain good credit score when applying for a housing loan.
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