Why is Credit Score Important for a Home loan?
If you have been contemplating taking a loan for meeting one or more of your financial obligations, such as buying a car or investing in a home, you must have come across the term CIBIL Score or Credit Score. As a matter of fact, almost all lenders and banks across India offer loans only to those individuals and businesses, who can exhibit a reasonably good credit score.
The reason behind this is rather simple. In order for banks or other financial institutions to believe in your ability to repay the loan, they rely on the history of financial discipline and credit score generated by credit bureaus like the Credit Information Bureau of India Limited (CIBIL), Experian, and others. On the basis of this report, the bank can conclude, whether you will prove to be a responsible borrower and repay your credit in time, and will approve your loan accordingly. This is especially imperative in case of Home Loan, as the disbursed amount of loan is substantially high, making it obligatory for the bank to double-check your willingness and ability to repay the debt as stipulated.
Calculation of Credit Score
The credit score is essentially a 3-digit numeric figure, which grades the credit history of a prospective borrower, thus assisting the lenders in determining the eligibility of the borrower.
A credit score is often calculated on the basis of numerous factors including:
- Borrower’s payment history
- Number and types of loan accounts under the borrower’s name
- Outstanding loan amounts
- Credit inquiries
- Guarantors on the loan
Usually, a credit score in the range of 650 to 850 is considered good by the banks and will help you get a swift Home Loan Approval. However, some lenders also offer loans to individuals in the bracket of 550-650. Anything lower than 550, will strongly curtail your chances of getting an approval.
If your credit score is high enough (750 or above), it puts you in a strong position to negotiate the terms of the loan with the bank. You can use it to your benefit and get a discount or waiver on some of the fees and charges related to the loan.
On the other hand, if your score is low, it puts the ball in the bank’s court. In such a case, the bank will carefully analyse all the other factors, such as your income, your outstanding debts, the location and market value of your property, as well as the credit history of co-applicant (if any) before approving the loan. Only if these auxiliary factors are in your favour, you will get an approval.
Importance of Credit Score
You may have understood by now, your credit score is an indispensable aspect of your Home Loan approval process. Let us now help you understand some benefits that a good score can help you enjoy.
Your Credit Score is a Great Bargaining Tool
If all or most of the eligibility parameters for your loan are in your favour, complete with a high credit score, you can use the same to get a favourable deal from the bank. Right from getting a waiver on the prepayment fee, to getting a substantial discount on the loan processing fee, you can have it all. Most banks are on the lookout for reliable borrowers, and wouldn’t want to miss the chance of offering you a loan!
Your Credit Score Can Earn You a Low-Interest Loan
It shouldn’t come as a surprise that the lower the interest rate on your loan is, the better off you are. After all, not only will it help reduce the chunk of each equated monthly instalment (EMI) that you need to pay, but will also bring down your overall interest outgo substantially, thus lessening your financial burden. If you enjoy a good credit score, you can use it to get a low-interest loan.
Your Credit Score Can Help You with Better Insurance Deals
When you opt for Home Loan insurance, a good credit score works in your favour. Hence, you can enjoy the benefits of a great insurance deal, at comparatively low premiums.
Your Credit Score Can Preside Over Other Factors
If you are falling behind on one or more of the eligibility aspects, such as age or income, but have a good credit score, the bank will likely overlook the other factors and approve your loan.
We hope that you are now better informed with respect to the significance of the credit score and the role that it plays in getting you the much-desired approval on your Home Loan application. Hence, make sure you check your score before applying for a Home Loan. Only if your score is good enough, should you go ahead with the application. If not, we recommend you wait for about six months, and work towards building a better score so that you can enjoy all the Home Loan benefits possible!
Also Read: 5 Best Home Loans for Women Borrowers
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