How much Credit Score is Needed for a Home Loan in India? - Loan Trivia


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Thursday 12 January 2023

How much Credit Score is Needed for a Home Loan in India?

When it comes to sanctioning an application for a home loan, several lending institutions emphasise the good credit score of borrowers. Some of the most important credit information bureaus provide this score, such as CIBIL, Equifax, and Experian. 

These organisations refer to an individual's credit history to understand the borrower's records of timely repayments. Based on this assessment, the creditworthiness of an individual is understood. A higher credit score is reflective of higher creditworthiness. 

Ideal CIBIL score for home loan in India

TransUnion CIBIL, the most influential credit bureau in India, uses a three-digit number to showcase the borrower's credit score. Depending on a borrower's credit behaviour, this score can range between 300 to 900. 

When people apply for home loan, financial institutions consider a score between 650 and 749 to be a minimum threshold to be eligible for approval. However, a score of 750 and beyond is considered ideal for getting a home loan sanctioned comparatively quicker. Such a CIBIL score is indicative that a borrower has made the payments on schedule. So, lenders can expect such behaviour to be repeated down the line. 

How is CIBIL score calculation done?

The weightage of a borrower's CIBIL score relies on several aspects. TransUnion CIBIL takes into account an individual's: 

  • History of reimbursing the lenders without any defaults 

  • Type and age of credit 

  • Credit utilisation ratio

  • Number of hard enquiries 

  • Outstanding debts

  • Income-to-expense ratio

  • Credit exposure 

How to increase CIBIL score?

A borrower can maintain certain practices to ensure his/her credit score can improve:

  • It is always beneficial to keep credit utilisation ratio below 30%. This ratio reflects the percentage of the total available revolving credit a borrower uses. As a lower ratio can symbolise a well-maintained financial discipline of the borrower, his/her creditworthiness can improve significantly. 

  • Notably, the RBI maintains a record of wilful defaulters with Rs.25 lakh or more money overdue to the different financial institutions. Being tagged as a CIBIL defaulter can reduce the scope of a borrower getting a loan approval sanctioned on time. So, making all the reimbursements on time is the primary way to improve the credit score.

  • A borrower must avoid applying for several lines of credit during a short period. Such applications will consequently be interpreted as credit-hungry behaviour from the individual, impacting the CIBIL score negatively. Therefore, taking out a single loan at a time can be an ideal way. 

  • Opting for a long-term loan can be helpful for borrowers. As a longer tenor means one has to pay a lower amount of EMI, there is a reduced scope of defaults. Therefore, they can repay the loan on time to boost their CIBIL scores. 

How to check CIBIL score?

An individual can check his/her CIBIL score in these following steps: 

Step 1: Visit the official website of TransUnion CIBIL

Step 2: Click on the "Check your CIBIL score" button

Step 3: Select a subscription plan. Users can check the score for free once a year or opt for a subscription to do the same multiple times annually. 

Step 4: Enter necessary personal details 

Step 5: Create a password and input necessary ID information

Step 6: The portal will verifying the user identity

Step 7: Complete the payment 

Step 8: Log in via mail/OTP authentication

Step 9: Fill up the form and submit it. Consequently, the borrower can see his/her CIBIL score on the dashboard. 

This way, borrowers can always keep a tab on their CIBIL scores. Due to the secured nature of the home loan, the credit score is not the sole determining factor for application sanctioning. However, a good credit score can help borrowers acquire a home loan at an affordable interest rate. 

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