CIBIL score is one of the most accepted scores in India granted to businesses and individuals, which showcases your credibility of you as a home loan applicant. While granting a Kotak home loan or YES bank home loan or home loan from any other lender, the basic thing that these lenders consider is your home loan eligibility. It endows a guarantee to lenders that you can make the home loan repayment.
CIBIL score ranges anywhere from 300 to 900, computed based on distinct parameters like your loan and credit card repayment history, a mix of credit, credit utilisation ratio, etc. The higher the credit score, the higher the chances of getting your home loan approval. Apart from your credit standings and other parameters, distinct property parameters are even factored in by lenders while granting a home loan. Continue reading to know more about how the CIBIL score plays an important role in getting your home loan approved. Also, check out how can you ameliorate it and get a home loan without facing any hassle.
What is a low credit score?
There is zero standard definition for a low credit score. Usually, a credit score less than 750 is looked upon as low by home loan lenders. However, CIBIL score eligibility might differ from one lender to another. A lower CIBIL score of below 750 is desired by the lenders for sanctioning a home loan. Distinct banks might have their own criterion for a minimum credit score, but at least 750 is required by the majority of Indian banks.
An individual with a credit score of between 700 and 750 is considered the least risky for offering a home loan. In case you have a score in the range of between 650 – 700, you may be looked upon as moderately risky by financial institutions and might be eligible for home loans with more conditions like lowered loan proceeds, higher rate of interest, higher processing charges, enhanced documentation, and various other fees, etc. than the ones applicable to you with a credit score of over 750.
Also Check: YES Bank Home Loan
A credit score of less than 650 is looked upon as high risk and the lenders might turn down your home loan application in such a case. Note that this limit of 650 might differ from one lender to another. Few nationalised or private banks might have a cut-off equaling 650, while few non-banking financial companies or NBFCs might be less stringent or lenient and consider a credit score of 550 to be the lower limit. CIBIL score generally is an important aspect for many lenders to endow a home loan deal. Continue reading to know the effective ways of enhancing your credit score with ease.
How to avail a home loan with a low credit score?
Here are certain ways you must adopt to avail a home loan despite a low credit score –
Approach an NBFC for availing a home loan –
The full form of NBFC is a non-banking financial company. This is a financial institution that offers you a deal the same as a bank but does not perform other business-like accepting deposits, payroll services, fund transfers, etc. A few of the most prominent NBFCs in India are Tata Capital, Bajaj Finserv, HDB Financial Services, Muthoot Fincorp, etc. HFC or Housing Finance Company even a kind of NBFC, however, it deals just in home loans. Indiabulls housing finance, LIC housing finance, Dewan housing finance limited, housing development finance corporation (HDFC), and others are a few of the major HFCs present in India.
Banks as compared to HFCs come with strict regulations than NBFCs when it is to approve your home loan application and tend to base their approval on your CIBIL report. Thus, applying with HFCs for a home loan has more chance of your loan being approved as compared to banks.
For example, as on August 2022, the minimum credit score required for applying for a home loan with BOI (bank of India) was 675 while for LIC housing finance was 650. However, it must be remembered while HFCs approve your application quickly, they tend to charge a higher rate of interest as compared to banks owing to the credit risk that they hold.
Add in a co-applicant having a strong credit score –
It is generally very common practice to apply jointly for a home loan with a co-applicant with a higher credit score. If you hold a lower credit score and your guarantor or co-applicant has a credit score of over 750, then few banks might approve your home loan application. However, you must note that this method isn’t an assured means to avail a home loan with a low credit score. These cases are usually rare, and it is totally up to the bank’s discretion to sanction the home loan if one of the home loan applicants has a reduced credit score. In most scenarios, banks turn down your home loan even if one of the applicants holds a credit score of over 750 and the other has a credit score of below 500.
Enhance your credit score –
As now you know that a low credit score is generally one of the important parameters for deciding your eligibility for a home loan and you must ensure to enhance your score. A few of the effective means to ameliorate your credit score involve repaying all your outstanding debts, raising a credit report repair request, regularizing your loan repayments, etc.
How to enhance a credit score?
Figure out a few effective means to enhance your credit score –
Raise a request for credit repair
A request for credit repair must be made on the website of CIBIL. You as a borrower must raise the request in case your CIBIL score is on the lower end owing to irregular past payments of your credit card dues and loan bills. A few of the minor reasons behind missed or delayed repayments might be a technical issue caused while deducting the EMI proceeds within a specified time before the due date. Raising a credit repair request may result in an improvement of your score in case you detect mistakes and report the same with relevant proof.
Clear off your dues
This requires you to pay all your debt accounts in totality and not via a settlement amount. Debt settlement is usually done by banks when you as a borrower are not able to repay the outstanding dues availed on time and the lender offers you to settle the account on a mutual basis. Such accounts are mentioned as settled on your credit report, which may reduce your credit score substantially.
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