The Impact of Your CIBIL Score on Home Loan Approval

Getting a Home Loan is not just about meeting income and employment criteria; banks also consider your credit or CIBIL score to determine your creditworthiness. For the uninitiated, having a good CIBIL score, preferably above 750, not only increases your chances of securing a home loan, but could also help you fetching a loan under favourable terms, like lower interest rates. 

In this blog, we will explore the impact of your CIBIL score on home loan approval and provide tips on how to improve your score, ultimately helping you secure a better home loan deal.

Impact of CIBIL Score on Home Loan Approval 

When applying for a home loan, banks scrutinise your CIBIL score to determine your loan eligibility. A score of 750 or above is considered ideal, as it demonstrates a strong credit history. Your credit history is a record of your loan accounts (both past and present), your EMI/credit card bill payments, credit utilisation ratio (ideally you shouldn’t use more than 25%-30% of your available credit), credit inquiries, etc. Credit bureaus like CIBIL, full form - Credit Information Bureau (India) Limited assign a score between 300 and 900 based on your credit history. 

Banks prefer lending to individuals with higher scores because it reduces the risk of default. If your CIBIL score meets or exceeds this threshold, you’re more likely to receive approval for your home loan application.

Additionally, a good credit score can result in more favourable terms, such as lower interest rates. Banks are more likely to offer preferential rates to borrowers with excellent credit scores as they pose lower risks of default. Additionally, having a higher CIBIL score could also make you eligible for a pre-approved home loan.

Example Calculation: Impact on EMI 

Let's consider an example to understand how your CIBIL score can affect your Equated Monthly Instalment (EMI): 

Assuming you take a home loan of ₹50 lakhs for 20 years at an interest rate of 8.5%: 

• With a credit score below 750, you might be offered an interest rate of 9.0%. In this case, your EMI would be approximately ₹45,932. 
• However, if you have a credit score above 750 and negotiate a lower interest rate of 8.0%, your EMI would reduce to approximately ₹43,246. This slight reduction in the interest rate could save you over ₹2 lakh during the loan tenure. 

As evident from this example, even a small improvement in your credit score can result in significant savings over time. 

How to Improve CIBIL Score? 

If your CIBIL score falls below the minimum requirement of a particular bank, there are several measures you can take to improve it: 

• Limit Loan Applications: Multiple loan applications or hard inquiries can negatively impact your credit score. Every time you apply for a loan, it triggers a hard enquiry on your credit report. Instead, research and apply for loans selectively to minimise the negative impact on your score. 
• Make Timely Repayments: Always ensure to pay your credit card bills or EMI on time. Making timely repayments will have a positive impact on your credit score. Conversely, missing repayments multiple times or defaulting on a loan can hurt your CIBIL score. 
• Check Your Credit Report: Regularly review your credit report for any errors that might be affecting your credit score. Dispute inaccuracies and request corrections if necessary.