CIBIL Score: How Important is Your CIBIL Score When Procuring Home Loan

So, you are all set to buy your new home, you have everything planned, right from the decor to the colour of your walls. All you need is a home loan. Ever thought about how a lending institution would decide on your loan amount or even lend you or not? For a home loan, you would need a good CIBIL score. But how much score do you require for a home loan, and how to get it?

What is a CIBIL score?

CIBIL score is essentially a credit score offered by the Credit Bureau Transunion CIBIL. There are 4 credit bureaus authorized by the RBI to keep a credit record of every Indian, these are Equifax, Experian, Highmark, and Credit Bureau of India. 

It is a three-digit number and ranges between 300 and 900. A score is a metric of measurement used by most lenders to judge your repayment capabilities. Since the RBI authorizes it, most lenders consider the CIBIL score as one of the most critical factors of your home loan application. CIBIL evaluates your payment history, credit handling trends, and existing banking to arrive at a final score.

A CIBIL score check is a must before going for a home loan.

1. Credit Score Range for Home Loan

A CIBIL score ranges from 300 – 900. Here are the different ranges of a CIBIL score.

350 – 549: A CIBIL score in this range is considered as bad. It means you have been late in paying credit card bills or EMIs for loans. With a CIBIL score in this range, it will be difficult for you to get a loan or a credit card as you are at a high risk of turning into a defaulter.

550–649: A CIBIL score in this range is considered fair. It suggests you have been struggling to pay the dues on time. The interest rates on the loan could also be higher.

650 – 749:  This range suggests that you display good credit behavior and you must increase your score further. Lenders will consider your credit application and offer you a loan. However, you may still not have the negotiation power to get the best deal on the rate of interest for a loan.

750 – 900: This is an excellent CIBIL score. It shows that you have been regular with credit payments. Banks will offer you loans and credit cards as well considering you are at the lowest risk of turning into a defaulter.

NA/NH: If you have no credit history, your CIBIL score will be NA/NH which means it is either “not applicable” or no history”. If you have not used a credit card or have never taken a loan, you will have no credit history. 

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2. Benefits of a good CIBIL score

Let us have a look at a few standout benefits of a good CIBIL score:

• Get more negotiating power
• Avail a higher home loan sanction
• Speedy loan processing
• Obtain a home loan at nominal rates
• Repayment flexibility. 

3. How to Check CIBIL Score

You may check your CIBIL score online by following a few simple steps, as outlined below.

• Log on to the official CIBIL website and click on Know Your Score.
• Fill up the online form.
• On filling the form, you will be taken to the payments page. You can choose from multiple modes of payment to get your credit report.
• After successfully making the payment, you will be taken to an authentication page. Here, you will be required to answer 5 questions related to your credit history of which you will have to answer at least 3 questions correctly to authenticate your identity with CIBIL. Your report will be sent to your email address within the next 24 hours.
• If authentication fails, you can fill and send a hard copy of the application to CIBIL by mail. You will subsequently also receive the report by mail.

4. Factors that Affect your CIBIL Score

A CIBIL score is made up of four main factors. Each factor has a different weightage. 

• Payment History – 30%
• Credit Exposure – 25%
• Credit Type & Duration – 25%
• Other Factors – 20%

• Payment History

To maintain a high score, you need to be prompt with your monthly credit card bill payments as well as loan EMIs. If you are delaying your payments or are defaulting on EMIs, it will hamper your score. A recent CIBIL analysis (reported by the Financial Express) revealed that 30-day delinquency can reduce your score by 100 points.

• Credit Utilization Ratio

Having a loan or multiple credit cards does not negatively impact your score. However, if your credit utilization ratio is high, it will bring your score down. Ideally, you should only spend up to 30% of your credit limit. A higher credit utilization ratio suggests you have been increasing your debt and are likely to turn a defaulter. 

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• Type of Credit and Duration

The age of your credit history is the number of years that have passed since you opened your first credit account. CIBIL considers the average number of years for which you have been holding a credit account. Having a good balance of secured (car or home) loans as well as unsecured (credit card) loans helps to boost your score. 

• Other Factors

Every time you apply for a loan or a credit card, the lender will check your credit report. If you make multiple credit requests within a short period, it will bring your score down. So, it is advised to spread your credit applications throughout the year instead of making them all at once.

5. How to improve CIBIL score

You can improve your home loan CIBIL score if it is not great. Consider doing the following: 

• Keeping credit utilization under 30%
• Paying your EMI’s on time
• Paying your credit card bills on time
• Monitor your credit report regularly

6. CIBIL Defaulters

So, what about personal loans for CIBIL defaulters? There is no separate defaulters list with the banks or credit bodies. Rather, credit companies maintain data about your repayment performance on the credit of all sorts. This data includes timely payments as well as defaulted payments of the borrowers. When repayments are late or not made at all, it harms your credit score.

Loan Process for CIBIL Defaulter

• Salary: A good salary will help you get your loan application approved, no matter how bad your CIBIL score is.
• Spouse’s CIBIL Score: If your CIBIL score is poor and your spouse has got a good score, then you can get your loan application approved.
• Some lenders provide loans to individuals who have bad CIBIL scores. They ask for higher interest rates on the repayment.

Besides these, you may consider applying for a loan with a co-applicant. The co-applicant should be someone with a high CIBIL score. It will improve your chances of getting a home loan quickly.