If you want to avail of a loan for any reason, one of the most critical factors determining your eligibility will be your credit score. This applies to loans against properties (LAPs) as well. For loan against property applications, lenders will evaluate your credit report to determine your eligibility. The minimum credit score required for an LAP varies depending on the lender. However, a higher credit score enhances your chances of availing credit at better terms and lower interest rates.
But what if you have a low credit score? Fortunately, there are certain steps you can take to improve your credit score and secure a loan against property. In this article, we will understand what credit scores are, how CIBIL determines credit scores in India, how they affect approval for loans against property, and how you can improve your credit score.
What is a Credit Score?
A CIBIL or credit score is a three-digit number that represents your credit history. In India, four major Credit Information Companies (CICs) release credit reports for various reasons. These include:
- TransUnion CIBIL
- Experian
- Equifax
- CRIF High Mark
Out of these, TransUnion CIBIL is one of the first and most widely used CICs, with over 900 member institutions. Established in 2000, CIBIL collects financial information from public and private sector banks, housing finance companies, and non-banking financial institutions. Based on this data, it issues a score known as a CIBIL or credit score.
CIBIL scores usually range from 300 to 900, with anything over 750 considered a “good” score. They are vital for approving loans, credit cards, and other financial offerings. A low score indicates a low probability of the individual replying to the loan or credit card bill, whereas a higher score indicates a higher likelihood of repayment.
Impact of CIBIL score on LAP approval
A loan against property (LAP) is a secured loan that allows you to avail of credit using your existing property as collateral. It comes with zero restrictions and can be used for various big or small expenses. With an LAP, you can benefit from the value of your property while continuing to occupy it.
Financial institutions use your CIBIL score to determine your creditworthiness for lending against property. A higher CIBIL score can lead to quick loan approvals and favourable terms, whereas lower scores may lead to the rejection of your application. The impact of CIBIL scores on LAP approvals is as follows:
1. Interest rates
When applying for loans against property, lenders often look at your credit report and CIBIL score. Lower CIBIL scores indicate a lower likelihood of repayment, whereas a higher CIIBL score reflects a strong capability to repay the loan. Therefore, loans against property interest rates are dependent on your CIBIL score. Maintaining a high score can help you avail of lower interest rates and better terms.
2. Loan terms and amounts
Lenders assess your CIBIL score to assess the risk of lending to you. A high credit score signals low risk, allowing you to negotiate better terms for your loan. It also makes you more likely to qualify for higher loan amounts and flexible repayment tenure.
How is a CIBIL score calculated?
CIBIL scores are calculated based on the complete record of an individual’s repayment history. This includes loans, credit cards, other borrowings, whether they were repaid on time, and their consistency. Settlements, defaults, and write-offs are also considered when determining your credit score. The two factors that impact your credit score the most are:
1. Payment history
Your payment history has a huge role in determining your credit score. Paying loan EMIs and credit card bills timely can greatly improve your credit score, whereas delayed payments can reduce it. Missed payments have an even more negative impact on your credit score.
2. Credit amount
The total amount of credit you use also affects your credit score. To maintain a good credit score, it is essential not to use more than 30% of your approved credit limit.
How can you Improve your Credit Score?
While a lower credit score may be intimidating, you can take a few simple steps to improve your score. These include:
- Regularly checking your CIBIL score to identify and address errors and discrepancies early.
- Limiting your credit usage and maintaining a low credit utilisation of 30% to 50% of the available limit.
- Repaying your credit card bill and monthly EMIs promptly.
- Limiting the number of unsecured credits, like personal loans or credit cards.
- Paying off existing debt.
- Reducing the number of credit inquiries by applying for new credit only when necessary.
- Setting up automatic payments to prevent missing due dates.
There are alternate ways to get a loan against property without a high CIBIL score. Some institutions may provide LAPs if you offer a high-value property or show stable proof of income. Having a co-applicant on the loan can also enhance your chances of getting your LAP application approved.
Summing up
When applying for an LAP, CIBIL scores can play a huge role. A good CIBIL score can ensure a faster application and documentation process, giving you lower interest rates, more significant loan amounts, and flexible repayment tenures.
Having a good credit score is vital to achieving your financial goals. If you want to obtain a loan against property at competitive interest rates and with minimal paperwork, consider Tata Capital. We offer quick and easy LAP application processing, flexible repayment tenures, tailored solutions, and more. By availing of a LAP with Tata Capita, you can also enjoy overdraft facilities and a hassle-free application process.
FAQs
The minimum CIBIL score for a loan against property depends on the lender’s policies. Any CIBIL score of 750 or more is typically considered good.
Your loan and credit repayment history, credit utilisation ratio, credit inquiries, and other factors affect your CIBIL score.
16 December 2024
5 mins read
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