Your CIBIL score is one of the most important factors that lenders consider when granting a loan. This score serves as an indicator of your creditworthiness and is a major factor in deciding whether or not your loan application is accepted.
If you’re considering applying for a mortgage loan, it’s important to understand how your CIBIL score can affect your eligibility for the loan. This article discusses everything you need to know about the minimum CIBIL score for a mortgage loan.
What is a CIBIL Score?
The Credit Information Bureau India Limited (CIBIL) is one of the country’s four credit agencies that provides credit scores. A three-digit numeric between 300 and 900 represents a CIBIL score.
While the ranges of favourable CIBIL scores vary with lender and financial institution, a score of above 700 is largely regarded as good. This is because it suggests a low repayment default risk. A CIBIL score differs from a credit score in so far as the latter is determined based on several criteria, such as credit history, credit utilisation, payment history, etc. A CIBIL score, on the other hand, is provided by CIBIL to assess an individual’s creditworthiness.
What is the Minimum CIBIL Score for a Mortgage Loan?
The minimum CIBIL score for a mortgage loan can differ depending on the lender. That said, a score of 750 or above is generally considered a minimum requirement. Lenders view this score favourably since it indicates high creditworthiness.
In case one’s CIBIL score is lower than this, lenders might reject the mortgage loan application or impose a higher interest rate to safeguard themselves.
Tips to Improve Your CIBIL Score Before Applying for a Home Loan
If your CIBIL score isn’t high enough, there are several steps you can take to improve it before applying for a mortgage loan:
1. Pay Your Dues on Time
Making sure you pay all of your bills on time is one of the easiest methods to improve your CIBIL score. Since late payments lower your credit score, setting up automatic or reminder payments will help you stay on top of your payments.
2. Keep Your Credit Utilisation Rate Low
A high credit utilisation rate informs lenders that you’re unable to live within your income and have poor financial discipline. Aim to maintain a 30% credit utilisation rate for a favourable loan application process.
3. Maintain a Healthy Credit Mix
To improve your credit score, take a balanced combination of secured and unsecured credit and repay it punctually. Your CIBIL score may suffer if you rely too much on unsecured loans, such as credit card debt or personal loans. It may be beneficial to balance these with secured loans, such as a mortgage loan.
4. Check Your Credit Report Regularly
Monitoring your credit report is crucial. Errors such as missing repayments or inaccurate payment information can have a negative impact on your score. You can identify and correct such errors by routinely reviewing your credit report.
5. Don’t Close Old Credit Accounts
Old credit accounts help establish a long-term association with financial institutions, which is regarded as positive by credit bureaus such as CIBIL. And so, avoid closing past credit accounts to show a steady credit history.
Role of a Good CIBIL Score in Securing Home Loans at Low-Interest Rates
Having a good CIBIL score not only increases your chances of getting a home loan but also helps you secure one at a lower interest rate. It is common for lenders to provide loans with low interest rates to individuals with good credit scores since they are seen as low-risk borrowers.
Here is how you can maintain a good CIBIL score and secure a home loan at the best interest rates:
1. Timely Payments
Paying your credit card bills on time improves your credit score. A punctual repayment history demonstrates your dependability on lenders, making it easier to get loans at favourable interest rates.
2. Review Your Credit History Regularly
As mentioned earlier, monitoring your credit history helps you identify irregularities or issues that could jeopardise your credit score. Fixing errors early on helps ensure your CIBIL score is accurate and aids in negotiating a competitive interest rate on your mortgage loan.
3. Limit New Credit Applications
Closing old ones and opening new credit accounts can affect your credit score as it reduces the average age of your credit history. Lenders prefer borrowers with a longer, stable credit history, which indicates creditworthiness.
Mortgage Loan and CIBIL Score
Here are some steps to take when applying for a mortgage loan:
1. Check Your Credit Score
Before filing an application for a mortgage loan, check your credit score. If it is poor, work on improving it before submitting your application. Taking measures to raise your score will boost your chances of approval.
2. Correct Any Inaccuracies in Your Credit Report
Incorrect details or errors in credit history in your credit report may cause your home loan application to be denied or delayed. If you notice a mistake, submit a dispute to the credit bureau.
3. Avoid Applying with Multiple Lenders
Applying for loans with multiple lenders at once can have an undesirable impact on your credit report information. Since a credit inquiry is conducted by each lender you apply to, and this inquiry is documented on your credit report, lenders may question your financial discipline and ability to meet expenses within your income.
Conclusion
One of the most important requirements that impact your eligibility for a house loan is your CIBIL score. A 750 or higher CIBIL score is ideal since it shows a strong credit history that appeals to lenders. While a score between 650 and 750 can still qualify you for a mortgage loan, it can prompt lenders to carry out a more extensive review of your financial status and impact your ability to get a low interest rate.
Maintaining a balanced credit mix, making on-time payments a priority, and routinely checking your credit report for errors are all necessary to raise and maintain a strong CIBIL score. Learning how CIBIL scores are determined and taking proactive measures to improve your credit score will help you secure better interest rates on loans and, by extension, make accessing credit easier.
04 December 2024
6 mins read
Previous Post
