5th, Feb, 2025

Why CIBIL Score Matters for Home Loans in India?

In India, one of the most significant accomplishments in a person's life is most likely home purchase. Most people make this ambition realistic with the help of home loans as everyday property values climb. But a home loan primarily depends on your CIBIL score. Simply having a consistent salary or a good job is insufficient. Your qualifying for a house loan, the rate of interest you are offered, and even the loan approval process will all depend on this three-digit figure in quite a significant manner. Here we will discuss why your CIBIL score counts for Indian house loans, how it could influence your loan application, and what you might do to improve it.

What is a CIBIL Score, and why is it relevant for home loans?

A CIBIL score—also known as a credit score—is a three-digit figure that represents your credibility. Calculated depending on credit history, repayment behaviour, and credit discipline, scores fall from 300 to 900. The owner is more credit-worthy the higher the score. Conversely, a lower score runs the danger since lenders could find it unacceptable.

Your CIBIL score for a house loan represents the lender's initial check point. It clarifies your ability to pay back the borrowed money within reasonable time. The better the CIBIL score, the more likely the loan will be authorised; conversely, the best terms of the deal—that is, reduced interest rates and larger loan amounts—can be obtained.

How is Cibil Score Calculated?

One's creditworthiness is determined by their three-digit CIBIL score, which ranges from 300 to 900. Credit history is used to evaluate financial behaviours and tendencies. High credit scores make it easier to get loans and credit cards with good terms.

Payment history accounts for 35% of the CIBIL score and is the most crucial component. Paying credit card bills, loan EMIs, and other financial responsibilities on schedule boosts the score. Late payments, loan defaults, and frequent delays lower the score and make lenders wary of expanding credit.

With 30% of the score, credit utilisation ratio is another important factor. This ratio shows a person's current credit usage percentage. A credit utilisation ratio below 30% of the credit limit shows cautious credit use and helps preserve a decent score. Credit card overuse indicates financial stress and might lower a person's score.

The duration of credit history also matters, adding 15% to the assessment. Long-term credit with appropriate use shows financial stability. Long-term credit account holders with good payback records have higher CIBIL scores than individuals with shorter credit histories.

Credit mix and enquiries account for 20% of CIBIL scores. A responsible credit profile has a balanced mix of secured and unsecured loans, such as home and vehicle loans and personal loans and credit cards. Multiple loan or credit card applications in a short time might lower the score since lenders record each inquiry and excessive credit-seeking is considered as an indication of financial difficulty.

The score is calculated by CIBIL based on an individual's repayment history, credit utilisation, term, mix, and current enquiries. Timely payments, modest credit utilisation, a long credit history, and responsible credit management can boost and maintain a high CIBIL score.

For people who don't have a credit history, in that case their cibil is marked as -1. Most of these cases are eligible for loan in usual conditions.

Minimum CIBIL Score Requiring a Home Loan

For the approval of a home loan, most Indian banks and financial institutions seek a minimum CIBIL score of 750 and above. While some lenders agree to provide a loan at a 650, scoring below that typically results in the loan being approved but at very high interest rates. Any score higher than 750 indicates that you have been a responsible credit card user; the lender will view you as low-risk.

How does a CIBIL score affect home loan interest rates?

It determines the interest rate relevant to your house loan. Since they are regarded as low-risk consumers, customers with an excellent CIBIL score, say 750 and above, usually get the most appealing interest rates.

Alternatively, a poor grade may lead to a higher rate of interest or charges that a lender may look forward to imposing on a bid in order to pay for the risks of defaulting against its account.

The following example relates to the marriage couple, who goes for the loan of ₹50 lakhs. Now, one person has a credit score of 800, and another person is carrying a credit score of 650. Therefore, in such situations, one would be getting a deal of 8.5%, whereas the other person is left with a deal of 9.5%. For instance, for 20 years, that amount might yield lakhs.

Impact of Credit Score on Home Loan Eligibility

This score is considered very crucial while qualifying with your home loan. A lender calculates this score and tests the repayment ability of a person as well as the kind of discipline that a person can maintain over his money. This possibility of getting penalized is far higher if the scores are on the higher side. A lower score is probable to be disallowed or may even scale down the amount sanctioned for a loan. A good credit score helps in good negotiation terms along with tenures or EMI.

Factors that Affect your CIBIL Score

Numerous factors determine your CIBIL score. Some of them are listed as follows:

1. Payment History: Punctual repaying of loans and credit card bills increases your score.

2. Credit Utilization Ratio: More than 30% of total available credit utilization will lower your score.

3. Length of Credit History: A long history of credit repaid indicates better financial stability.

4. Credit Mix: An ideal combination of secured like home loan and unsecured like a credit card boost your score.

Applying for many loans or credit cards within a relatively short period will lower your score.

When is a loan application rejected?

It might be turned down for poor CIBIL score, a dubious repayment record, or a high debt-to---income ratio. Furthermore a factor for denial could be several recent credit inquiries and credit report mistakes on missing payments or inaccurate loan information. You should check your credit report and routinely fix errors.

Raising Your CIBIL Score to Improve Home Loan Credibility

 Should your CIBIL score be poor, use these guidelines to improve the same:

1. Pay credit card or loan bills right away without delay—even for one day. 

2. Try to use credit cards less than thirty percent of their credit limit.

3. Cut the credit searches to avoid several loan applications.

4. Pay off credit card debt or current loans to clear outstanding debt.

5.  Keep looking over your credit report and raise questions about mistakes.

Long-Term Benefits of Maintaining Good CIBIL Scores

There are numerous long-term benefits of having good CIBIL scores. These include:

1. Easier approvals with more probability on loans and credit cards

2. Lesser interest rate on home loans and other products of credit

3. More amount of loan with better terms and conditions of repayments

4. Better financial reputation and credibility

Common Myths Related to CIBIL Score and the Home Loan Eligibility

1. Myth: Good Income Suffices for the Loan.

Fact: Lenders would rather give priority to credit worthiness over the income. Poor CIBIL score and a high income lead to rejection.

2. Myths: CIBIL is checked too often. It lowers.

Fact: Checking your score is a soft inquiry, never hurts the score.

3. Myths: Closing old credit cards helps raise one's score.

Fact: Closing old accounts can short the credit history and reduce the score.

Is It Possible for a Person With Low CIBIL Score To Get Home Loan?

Yes, it is quite possible to get a home loan even with a bad CIBIL score. Of course, the procedure would be a little difficult as compared to other times, though. The interest rates that will be applied for such customers with low scores will be pretty high or might demand more documentation. Alternatively, one can improve one's score, and then opt for a home loan.

Comparison of CIBIL with Other Credit Bureaus in India

CIBIL is the largest used credit bureau of India. The other Indian bureaus are Experian, Equifax, and CRIF High Mark which also provide credit scores. Albeit, various bureaus can be a bit different in the algorithm, yet fundamentals like repayment history, credit utilization, etc will be very much similar. Therefore, taking scores from more than one bureaus is considered apt so that a person might get an all-rounded view about his credit health.

How to check CIBIL Score?

One can check online through the authentic website of CIBIL or any other reputed platform. Details required are Name, PAN No. and DOB. Sometimes, credit reports are available free of cost, for once in a year, but a small fee on other websites.

Helpful Tips to Improve CIBIL Score

1. Health Balance of Secured and Unsecured Loans.

2. Limit Credit Card Usage: Avoid maximum usage of your credit cards.

3. Set reminders or turn on auto-debit for bill payments to help avoid defaulting on payments.

4. Make sure loans you co-signed pay back on schedule.

5. If you have never used credit, you could choose to start with a secured credit card.

Why Housegyan?

Buying a home is one of the most important decisions of a lifetime, and at House Gyan we make buying easy by guiding you through home loans, selection of property, and financial planning. At Home Gyan, we are here to be with you, whether first time home buyer or investment in real estate, we will help you in understanding your CIBIL score to select the right home loan for you.

Conclusion

The CIBIL score actually is the largest factor during availing of home loans in India. In the first place, it defines one's eligibility. Besides this, it helps differ while lenders will provide an interest rate along with terms during sanctioning a loan. Having a good credit score unlocks some better options on loans besides saving a great amount of interest paid in return. If the score is low, then the best thing would be to increase the score for getting the loan. A good CIBIL score is not a number but a reflection of your financial discipline and the key to getting your dream house. For more insights and expert advice on home loans and real estate, visit Housegyantoday!