For countless individuals, the aspiration of owning a home stands as a cornerstone of their life's ambitions. Yet, the realisation of this dream often rests upon securing a Home Loan, where creditworthiness emerges as a pivotal determinant, as gauged by your CIBIL score.
Your credit score serves as a critical barometer, influencing your eligibility for a home loan, as lenders scrutinize it meticulously when deliberating on your application's fate. However, for many hopeful homeowners, the journey to property ownership encounters a significant hurdle: a low CIBIL score, which can obstruct the path to obtaining the sought-after home loan.
So, what is the minimum CIBIL score on housing loans, and how do you improve your scores? Here is all you need to know.
Understanding the CIBIL score for a home loan
A CIBIL score is a 3-digit number summarising your credit history, ranging from 300 to 900. The score summarises your credit accounts, repayment history, and outstanding loans or debts.
A high credit score means that you have successfully managed your finances. However, a lower score suggests scope for improvement. For a home loan, minimum CIBIL scores usually depend on banks, but a credit score of at least 750 is expected.
Requirement of the CIBIL Score on Home Loans
1. Eligibility criteria
To avail of the home loans, you need to have a CIBIL score of anywhere above 750 to be considered. A score too low signifies financial uncertainty for the lender, which risks your home loan sanction process.
2. Interest rate calculation
Your CIBIL score also affects the interest rate you're eligible for, serving as a crucial factor in the risk assessment conducted by financial institutions. A favorable CIBIL score not only enhances your likelihood of loan approval but also positions you to secure more favorable interest rates.
3. Loan sanction amount and terms
The process is simple. If you have a higher CIBIL score, you get offered a higher loan amount, sometimes more than you applied for. However, having a low CIBIL score affects your loan sanction amount and might lower the amount you wish to sanction.
4. Faster loan approval process
A lender looks for trust and promise of payable capacity in a borrower, and a high CIBIL score gives them that trust. This boosts the process, and you get your loan amount in no time. On the other hand, a lower CIBIL score takes more time to approve.
Minimum CIBIL Score required for a Home Loan
The minimum CIBIL score for a home loan differs according to the lender you approach. A standard score of 650 to 750 is usually considered optimum, and a score above 750 would be considered excellent, qualifying for better home loan deals. If your scores range from 550 to 649, you should work to get them back up to ensure a smooth home loan sanction process. If you don’t have the scores to qualify currently, don’t worry. There are potential ways that you can boost your CIBIL scores. Let us understand how.
Improving CIBIL Score for a Home Loan
Your credit score gets affected if you have a record of consistently missing your bill payment deadlines. Pay all your credit card bills, loan EMIs, utility bills, and other financial expenses on time to keep your CIBIL scores high.
- Reduce any outstanding debt
If you have significant outstanding debt, it might cause hindrances in your home loan approval. Work towards reducing these debts, especially on credit card balances, and fix a utilisation ratio for your expenses.
A maxed-out credit card might be looked upon as financial distress. So, plan your credit card usage better, ideally under 30%, and avoid maxing out your cards. The utilisation ratio denotes the percentage of your credit limit used, and fixing a minimum ratio can help you build a better credit score.
Diversifying your credit with revolving and instalment credit types such as personal loans or retail accounts can help you build a stronger score. It suggests that you have been responsibly managing different types of credit accounts over time, which increases your credit score and chances of getting a loan approval.
- Limit your loan applications
You need to research thoroughly before applying for home loans because every application comes with a ‘hard inquiry’ on your credit report. It can temporarily lower your CIBIL score, and too many applications also raise concerns about financial stability. So, it is wise to limit your loan application and make well-informed decisions.
Impact of CIBIL Score on Home Loan eligibility
A good CIBIL score makes your home loan approval process much faster and gets you lower interest rates, EMIs, and a higher loan amount. However, if your CIBIL score is lower, the lenders adjust the loan sanction amount according to your payable capacity, provide higher interest rates, EMIs, and a long approval process.
If the lender doesn’t trust your account, they might reject your application, and too many applications can eventually affect your CIBIL score. Hence, if you have a lower CIBIL score and have plans to apply for a home loan, start working towards getting the scores up to close a better deal.
Check CIBIL Score online
- Visit Axis Bank’s “Check your credit score” page.
- Find the credit score check section.
- For verification, fill in your personal information, like name, DOB, PAN, and contact details.
- Instantly receive your credit score and credit report, a detailed report about your credit history, accounts, repayment status, and outstanding debts.
Also Read: 10 easy steps for the Home Loan application process
Frequently Asked Questions (FAQ)
1. Can I get home loans with a low CIBIL score?
You might find some options for home loans with low credit scores, but the lender might not be able to lend you the full amount you have applied for. So, it is necessary to have a backup fund to support your expenses.
2. How to apply for a home loan without a CIBIL score?
You can opt for home loans without a CIBIL score, but these loans come with significantly high interest rates.
3. Can I get a home loan if I am on the CIBIL defaulter list?
Being on the CIBIL defaulter list might project you as a risky candidate for a loan, but you can change that by improving your credit scores. Some ways to improve your credit score are paying all your EMIs on time, reducing outstanding credit, limiting credit utilisation and loan applications, and diversifying your credit.
4. What is the minimum CIBIL score required for a home loan?
The minimum CIBIL for home loans depends on particular lenders, but you need a minimum CIBIL score of 650.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
