Unlocking Homeownership: Understanding CIBIL Score for Home Loan Approval

To be eligible for a home loan, a loan applicant must have a CIBIL score of 750 or above. A CIBIL score below 700 can make it quite challenging for a home loan borrower to enjoy quick home loan approval. Such a CIBIL score may lead to difficulties in getting approved for a higher home loan sanction or lower home loan interest rates. So, what is the CIBIL score and why is it important for home loan approval?

An individual’s CIBIL score is a digital summary of their credit history and the CIBIL score is important as lenders use this metric to gauge the loan applicant’s creditworthiness and repayment capacity as well as decide the terms and conditions of the home loan to be sanctioned. TransUnion CIBIL, the most popular credit information agency in India, assigns CIBIL scores based on five key data points: repayment history, credit utilization ratio, credit mix, age of credit and hard enquiries under an applicant’s name or dependency on credit. 

The ideal CIBIL score for home loans is 750. Individuals planning to apply for a home loan must understand different CIBIL score ranges and how lenders perceive them. 

CIBIL Score Ranges: What Do They Mean

The CIBIL score is a three-digit number between 300 and 900 with 300 being the lowest CIBIL score an individual can have and 900 being the highest. These are the different credit score ranges along with a brief explanation of how lenders perceive them. 

Excellent (750 and above): This is the ideal CIBIL score for home loans. Lenders trust such borrowers with timely repayment of loan money. Consequentially, loan applicants with an excellent CIBIL score are approved for home loans or any other type of loan almost immediately. Further, applicants with such a CIBIL score have high negotiating power and have the upper hand in negotiations with their lenders. 

Good (700 and 749): A good CIBIL score indicates good repayment capacity. Lenders see these loan applicants as individuals who can by and large be trusted with timely repayment of their home loan EMIs. However, certain credit-related mistakes made in the past raise small doubts. Thus, individuals with a good CIBIL score get approved for home loans. However, their negotiating power suffers slightly on account of their slightly lower CIBIL score.

Average (600 to 699): Individuals with an average CIBIL score do not leave a very good impression on lenders. These are individuals who have made credit-related mistakes often in the past and thus, lenders have every reason to doubt their repayment capacity. Individuals with an average CIBIL score may get approved for a home loan, but they do not have any option other than to accept the loan on the terms and conditions decided by their lender. 

Bad or Low Credit Score (Below 599): A credit score in the range of 500 to 599 is considered bad or low and a CIBIL score between 300 and 499 is considered very low. If your CIBIL score falls within these ranges, it is very unlikely that any lender will consider you eligible for a home loan. In fact, even a co-borrower or guarantor may not be able to improve your home loan eligibility and chances of loan approval.  

In conclusion, the ideal CIBIL score for home loans is 750 and above and individuals planning to apply for home loan must proceed with their loan application only if their CIBIL score is 750 or above. It is possible to check CIBIL online for free. TransUnion CIBIL offers this facility and so do many other websites that allow credit users to check their CIBIL score by sharing their PAN details. If your CIBIL score does not meet your lender’s home loan eligibility requirements, here are a few simple tips that will help you improve your credit rating. 

How to Improve Your CIBIL Score: Handy Tips

  1. Get into the habit of paying your credit card bills and loan EMIs on time. A clean repayment history is the first step towards an ideal CIBIL score for home loans. 
  2. Maintain your credit utilization ratio below 30%. Doing so will become easy if you use your credit cards judiciously and pay the entire amount pending each month. 
  3. Do not show excessive dependency on credit by applying for too many loans and having too many hard enquiries under your name. 
  4. Do not close old loan accounts, primarily to maintain the age of your credit history. Remember, the longer a person’s credit history, the better their CIBIL score. 
  5. Lastly, maintain a healthy mix of both secured and unsecured loans as it shows a person’s ability to handle all kinds of debt and therefore, has a positive impact on one’s credit rating. 

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