CIBIL scores are required by banks and other financial institutions to check the credit history and measure the creditworthiness of loan applicants or borrowers. CIBIL or the Credit Information Bureau India Ltd maintains the financial records of individuals and companies regarding loans and credit cards. Such information is submitted by the banks and NBFCs (Non-Banking Financial Companies) to the CIBIL on a timely basis.
CIBIL uses this information to develop a credit score.
Home loan is a sum of money you borrow from the bank and other financial institutions to build or purchase a house. It is a secured form of loan where the deed/agreement of the home is held with the lender as collateral against the loan. The lender holds the deed of the property till the loan has been fully paid back with the due interest for it.
Why is CIBIL score important when you apply for a home loan?
CIBIL score plays a significant role in processing your home loan application. In fact, your CIBIL score is one of the essential criteria’s based on which lenders decide whether to approve your home loan or not. When you submit your application for a home loan, the first thing banks do is, check your CIBIL score for home loanand the credit history. If your CIBIL score is bad and you have a poor credit repayment history, the bank is most likely to reject your home loan application.
A higher CIBIL score for home loan, give confidence to the lenders. It is a reflection of your creditworthiness. Your CIBIL score acts as the first impression while applying for a home loan. However, CIBIL does not decide if the loan should be granted or not, and also not the amount of loan to be sanctioned. CIBIL is here in the picture to help lenders and even the applicants to make informed decisions.
The CIBIL score extends within 300 and 900, where 300 is considered to be the lowest. The credit score of 750 and above is highly preferred by the loan providers. Higher the CIBIL score for home loan, better are the chances of your loan application approval. In India, 750 is considered an ideal score to get secured loans such as a home loan. However, some lenders may sanction the loan with slightly a lower score as they hold the collateral against the loan.
Practice following habits to improve your CIBIL score before applying for a home loan.
• Acquire fewer loans before you take a home loan.
• Make sure you pay off all the credit card bills in full.
• Repay EMIs on your existing loans on time.
• Do not utilise more than 75% of your credit card limit.
• Do not make too many inquiries for a home loan at a time.
• Avoid being a guarantor for some one’s loan right before you apply for your own loan.
A good CIBIL score for home loan does not only simplify the process, but also help you save money in terms of lower interest rates. It is necessary to keep a regular check on your credit score and work on improving it when it is low.
How lenders make use of CIBIL score for home loan?
CIBIL has made it easy for the banks and lenders in the assessment of the loan application before sanctioning the loan. CIBIL has a huge database of individuals and their credit history. Lenders have access to the information on your credit history and loan repayment behaviour. This information helps the lenders to make informed decision whether to sanction a loan or not.
What is the maximum amount that can be borrowed under a home loan?
In India, lenders generally offer a loan amount up to 80-85% of the value of your home. However, there are a few factors that banks take into consideration: the status of the borrower (non-resident, resident), and the type of home loan you are applying (property purchase, renovation, investment).
Also, the repayment tenure is calculated considering your loan repayment ability. This includes your income and the amount of existing EMIs. Generally, the duration for which home loans are taken varies from 5 to 30 years.
Steps to follow when applying for a home loan.
Here are a few steps that you need to follow to leverage your CIBIL score while applying for a home loan.
Step 1: Check your CIBIL score before applying for home loan.
It is wise to check your CIBIL score for home loan before applying for a loan to ensure that your credit history is in order to avoid your home loan rejection from the bank. You can check your CIBIL report for free once in a year from the official website of CIBIL. Or you can also purchase the same by paying a nominal fee.
Step 2: Do not apply repeatedly.
Your loan application is rejected by a bank if your CIBIL score for home loan is lower than required. In that case, do not repeatedly apply at other banks. This might further reduce your CIBIL score as a number of inquiries affect your CIBIL score negatively. Instead, you can improve it by,
• Making timely payments
• Not exhausting the entire credit limit
• Settle the unpaid dues at the earliest
• Keeping a track on your credit history by checking your CIBIL score at regular intervals.
Step 3: Limit your unsecured loans
Try to close or balance the number of secured and unsecured loans such as credit card with a high limit and personal loans. They are the main indicators of outstanding debt. It is important to note that banks consider your debt to income ratio while reviewing your home loan application. Higher debt to income ratio indicates that you are already overburdened and may not be able to pay the additional EMIs of home loan.
Thus, check your CIBIL score for home loan before applying for one and select the lender who is offering a competitive interest rate. Your CIBIL score directly affects your interest rate and loan terms. Depending upon your score, you will be charged a high or nominal interest rate on your home loan. This will impact the amount of loan and the EMI amount. So, it is critical to maintaining an excellent CIBIL score for a hassle-free borrowing for your dream home.