Finding the right home is not the only element to consider while buying a house as people have to evaluate their finances, as well. As property prices are witnessing substantial hikes than ever before, housing loans have become a go-to solution for most people.
However, some notable factors can influence the approval of one's property loan, but none bigger than the credit score. Thus, individuals must achieve a good credit score for home loans. Below one can learn more about its importance.
What exactly is a CIBIL score?
CIBIL score is a 3-digit number that ranges between 300 and 900 to represent an individual's creditworthiness. The benchmark for a good score is 700 or above, as a score below this can significantly reduce the chances of getting approval for one's loan application.
How to build a CIBIL score?
Having a good CIBIL score is essential for getting a loan application sanctioned quickly with favourable terms. The following tips can an individual help build a credit score for a home loan:
Avoid defaulting, and pay the credit card bills and existing EMIs on time.
Not exceeding the credit utilisation limit by only using 30% of the total credit limit.
Do not keep applying for loans frequently, as it initiates a PAN enquiry which can reduce the score.
Maintaining mixed credit forms, that is, by having both secured and unsecured forms of loans.
How does CIBIL score impact housing loan applications?
CIBIL score is an essential element that is assessed by every lender before approving one's loan application. The following can be the impacts of a low or high credit score:
Application approval
Having a high CIBIL score of 750 or above displays a person as a low-risk and responsible credit seeker. This enhances the chances of getting their loan application approved. Whereas a score below 650 represents an individual as a risky borrower and makes the lender believe that the threat of default is higher. Therefore, applicants with a low score might get their property loan application rejected.
Interest rates
If one has a score above 750, the chances of getting the loan at a low home loan interest rate are better, when compared with people having a CIBIL score below 700 who will get their loan sanctioned at a higher rate of interest. It means the EMIs will increase for people with a low CIBIL.
Loan amount
The loan amount is determined by evaluating the applicant’s income and CIBIL score. Thus, when financial institutes find out that the score is low, they offer smaller loan amounts. Whereas, people with better credit scores can potentially secure a home loan of a larger amount.
Authority for negotiation
Applicants can negotiate with lenders to get home loans at favourable terms. However, the negotiation power can diminish because of a low CIBIL score. This is why it is advised to maintain a good score in order to achieve a housing loan of a bigger amount with a lower interest rate and longer tenor.
Additionally, multiple financial institutions offer their loyal existing customers pre-approved loans in the form of home loans and property loans. By submitting the necessary information on the institute's website, every client can quickly check if they are eligible to enjoy these benefits. These offers from the lender's side, not only shorten the process of getting a home loan but also provide them with favourable terms.
To secure a housing loan with favourable terms, a person needs to maintain a good credit score. Therefore, by understanding the impacts of a bad and good CIBIL score for a home loan, people can prepare themselves by identifying their mistakes and take the necessary steps to improve their credit score.
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