Importance of a Good Credit Score for a Home Loan



Importance of a Good Credit Score for a Home Loan

A credit score refers to three digits that reflect your creditworthiness. An excellent credit score starts from 750 for a home loan. When a financial institution reviews your home loan application, it checks to confirm that your credit score is acceptable. The credit score determines whether or not a lender will approve your home loan application. Also, the score determines whether you get a high or low interest rate. 

Credit Information Bureau India Limited (CIBIL) is the body responsible for issuing credit scores. It also calculates your credit score by analyzing your financial decisions and responsibilities as a credit cardholder.

A credit score shows the overall financial risk you pose and how likely you are to repay the home loan. The Credit Bureau calculates the score based on some points like your previous debts, your repayment history, and your debt-to-income ratio. You must maintain a high credit score before applying for a home loan to improve your chances of getting a home loan and enjoying a low home loan interest rate. 

In this article, you’ll learn the importance of a good credit rating for a home loan.

CIBIL Score for Home Loan Range

Below is a table showing credit scores prepared by CIBIL and their respective grades: 

Score Range

Grade

750 - 900

Excellent

700 - 749

Good

650 - 699

Fair

600 - 649

Doubtful

Below 600

Immediate Action Required

 

Reasons Why a Good CIBIL Score for Home Loan is Important 

Read on to know a few key reasons why a good credit score boosts your chances of taking a home loan.

1. To Avail of a Low Interest Rate

The credit score tells the lender all they need to know about your creditworthiness. With it, they determine whether it is prudent to approve your home loan application. If you have a low credit score, you may be offered a high interest rate and, eventually, will have to pay high Equated Monthly Instalments (EMIs) on your home loan. Having an excellent credit score assures the lender that you do not pose a high risk, allowing you to enjoy a low home loan interest rate

A good credit score basically helps lenders know if you can repay your home loan within the agreed loan tenor. Lenders examine factors like the credit utilization ratio and the debt-to-income ratio to learn your financial decisions and how often you seek credit. If your score reflects a poor repayment history, your chances of taking a home loan reduce.

2. To Insure Your Home Easily

If you want to insure your home, then an excellent credit score can help with an affordable premium. Insurance companies prefer clients with a fine credit history and great credit score because it means that the clients are low-risk clients and are less likely to file for claims.  

3. To Increase the Loan Amount You Can Receive 

A credit score determines the loan amount that you can apply for. Having a great credit score improves your chances of getting a higher loan amount. The higher your credit scores, the higher the loan amount you can apply for, as the score reflects your ability to repay a loan. Of course, here your income and obligations also come into play.

If you have a low score, you can only apply for a low loan amount that comes with a high interest rate. Also, a low credit score could also make lenders completely decline your application. 

4. To Expedite Loan Approval

Your credit score determines how long your allocation is processed before approval. If you have a high credit score, then your application will be approved quicker than those with low credit scores. A good credit score implies a high level of financial security. If your score is low, then you will experience long waiting periods, and your application may even be declined. 

Apply for a Home Loan Today 

Now that you know the importance of a good CIBIL score for a home loan, you can work to improve CIBIL score if it is currently low. However, if you have an excellent score, then you should consider applying right away.

As someone with a  high CIBIL score, you can negotiate favourable borrowing terms from any of the leading lenders in the market.