Your loan eligibility is determined by your CIBIL score. India’s leading credit rating agency, CIBIL (Credit Information Bureau India Ltd.), rates your creditworthiness based on your credit history, loan/credit card repayment habits, frequency of loan applications , the number of outstanding loans and other factors.
The CIBIL score is given on a scale of 300 to 900, with 900 being the highest and 300 the lowest. A CIBIL score of 750 is generally required for a borrower to be considered for a loan.
CIBIL score for home loans
If you want to avoid being turned down for a loan, you should be aware of the importance of a CIBIL score in the loan approval process.
The first thing a lender looks at when you apply for a loan is your credit score. Your loan application is likely to be rejected if you have a low credit score. However, if you have a good credit score (over 750), the lender will review your application further to determine your creditworthiness before making a final loan decision. Your credit score provides lenders with an instant assessment of your likelihood of default based on your repayment history.
What is CIBIL Score for home loans?
Home loans are usually granted by banks or financial institutions, and as lenders they must ensure that all relevant risks are minimized. This is where your CIBIL score comes in handy.
TransUnion CIBIL Limited, a credit reporting company, generates credit history reports for each individual and business organization once a month.
CIBIL reports help to better judge one’s loan history and decide whether the mortgage application is accepted or rejected.
How is the credit score calculated?
Credit ratings are determined by factors such as:
Your financial history.
The total amount due to the various lenders, or the credit balance.
The total amount of credit you have used.
Any new credit you have applied for or been approved for.
Credit distribution (composition of credit in terms of different types of loans).
How do lenders use CIBIL scores?
Before sanctioning a loan, lenders were required to conduct a partly subjective internal assessment and perform background checks. With the help of a credit score and credit report, however, getting accurate, data-based credit information about the applicant has never been easier.
CIBIL tracks customer credit activity in a database. Their credit score is calculated using this information.
Lenders may consider you a high-risk customer if your credit score is low (under 700) and they may refuse to approve your loan application. With a high credit rating, lenders will consider you a low-risk customer.
How to improve your credit score for a home loan?
Here are the steps to meet the CIBIL score requirements for your home loan application.
- Check your CIBIL score before applying for a home loan or any other type of loan to reduce the risk of your loan application being rejected
- If a lender rejects your home loan application, work on improving your CIBIL score before applying to another lender.
- Make it a priority to handle any unsecured loans you have, such as personal loans or credit cards. If possible, close them with a high credit limit. This is because lenders can assess your total debt balance based on your debt-to-income ratio (DTI).
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