Your credit score is an indicative metric that allows lenders to take a closer look at your repayment histories and loan eligibility. If you are in India, credit histories and profiles are evaluated based on the CIBIL score, which in turn facilitates the approval and rejection of the credit line, as per the existing figures.
Although the concerned lenders peek into your CIBIL score (click here to know more about CIBIL Score) regardless of the loan type, this factor is held in the highest regard when it comes to approving home loan applications. In the subsequent sections, we shall take a closer at the reasons why your credit score is such an important determinant when home loans are taken into account:
- Long Tenure Loans
Banks, HFCs, and NBFCs need to be exactly sure about your ability to repay the home loan before they even consider your application. This is why your credit score is accessed the moment you place a request for a home loan. Moreover, as these are long tenure loans, lenders prefer being certain about your financial stead and the existing credit history.
- Helps with Eligibility Monitoring
The current scenario is perfect for securing an affordable home loan. However, to cut the clutter and ensure discretionary eligibility, banks rely on the CIBIL score. This factor eliminates overburdening of the financial system and compels you to revisit the drawing board regarding how to improve CIBIL score and improve eligibility.
- Availability of Better Interest Rates
Banks, HFCs, and NBFCs offer variable interest rates on home loans, which are often based on the CIBIL score of the concerned individual. For instance, if the lender finds your CIBIL score to be on the higher side, i.e., closer to 850, you end up getting better deals on home loans. This means lenders have faith in your ability to pay off the loan amount and, therefore, they charge affordable rates.
However, for lower CIBIL scores, financial institutions are way more stringent and charge higher interest rates as a faith validating metric. This is why it is important to fix the CIBIL score beforehand as even a small hike in the interest rate can significantly increase the payable amount, something that can be inferred using a house loan calculator.
- Better Chances of Balance Transfer
In case you want to shift or transfer your home loan to another bank or lender after a certain period, you must try to keep the CIBIL score intact or move it higher to be termed as eligible. New banks consider balance transfers as a new loan, which makes credit profile and scores even more important.
How to Improve the CIBIL Score?
A good credit score or lack thereof can have a massive impact on your chances of getting approved for a home loan. Therefore, if you have a plan on applying for a home loan in the near future, it is necessary to fix the CIBIL score by:
- Making timely payments
- Getting rid of recurring or revolving debts
- Focusing on debt trap avoidance
Besides, if you are a first-time borrower, you might consider getting a fresh line of credit to start with, make regular repayments, and improve your credit history to improve eligibility.