CIBIL score is one of the most accepted scores in India provided to businesses and individuals, which shows your credibility of you as a home loan applicant. When you apply for a home loan in Bhopal or home loan in Indore or a home loan in any other city of your residence, your home loan lender initially before making any decision fetches your credit report to see your credit score, which helps understand your behaviour towards credit. This endows a sense of assurance to the lender that you as an individual can make the home loan repayment on time.
CIBIL score ranges anywhere from 300 to 900, computed depending on distinct parameters like the past loan history and repayment history of you, an applicant. The higher your credit score, the higher your chances of securing a home loan.
Apart from your credit score and profile, other parameters are also factored in by lenders while approving a home loan. Continue reading to get an idea about how credit score plays a crucial role in getting your home loan approval. Also, read on to know how you can ameliorate your score and avail a home loan with zero hassle.
How low is considered a low credit score?
There’s zero standard definition of a low score. Usually, a credit score of less than 600 is looked upon as low by home loan lenders. But the score eligibility might differ from one lender to another. A minimal score of between 700 and 750 is considered desirable by lenders for sanctioning home loan approval. Distinct banks might come up with their own set of criteria for minimal score but at least a score of 700 is required or preferred by most Indian banks. An individual with a score of between 700 and 750 or more is looked upon as the least risky for approving a home loan.
Those with a score ranging between 650 and 700 are looked upon as moderately risky by the lenders and might be provided home loan approval with a lot of conditions like lowered loan proceeds, higher rate of interest, enhanced documentation and higher processing charges and other fees, etc. than those with a score of over 700.
A credit score less than 650 is looked upon as high risk and lenders tend to turn down home loan applications for such applicants. Now, this specific limit of 650 might differ from one lender to another. A few nationalised or private sector banks might ask for a cut-off score of 650 while a few non-banking financial companies might be very lenient and may consider a credit score of below 550 for approving the loan application but at a higher rate of interest.
Credit score generally is a deterrent for a lot of lenders to make the decision of home loan approval. Continue reading to get an idea about the effective ways of enhancing your score with ease.
How can you avail a home loan with a low score?
Here are some of the ways you can use of availing a home loan despite a low score.
Approach the NBFC (non-banking financial companies) for a home loan –
NBFC basically stands for a non-banking financial company. This is a financial company that approves loans to you just like a bank but does not check any other parameters for determining whether to approve like reviewing your score, income, etc. A few of the prominent or essential Indian NBFCs are Tata Capital, Bajaj Finserv, HDB Financial Services, Muthoot Fincorp, etc.
Housing Finance Company or HFC is even a kind of NBFC but deals just with housing loans. LIC housing finance, Dewan housing finance limited, Indiabulls housing finance, housing development finance corporation, etc. Usually, banks come with strict rules and regulations than NBFCs when it is regarding home loan application approval depending on your credit report. Thus, applying to the NBFCs for home loans basically has a higher chance of getting loan approval than banks. For example, as of 2022, the minimal credit score requirement to apply for a loan with LIC housing finance is anywhere around 650 and for the Bank of India, it is around 675. Also, note that NBFCs tend to levy a higher rate of interest than banks.
Add in a co-applicant holding an excellent credit score –
It is a very common practice to apply jointly for a home loan with a co-applicant to increase your credit score. If you hold a lower credit score and your guarantor or co-applicant has a score of over 750, then a few financial institutions might approve the home loan application. However, you must note that this method isn’t assured to avail a home loan with a low credit score. Such scenarios are rare, and it is completely up to the bank’s discretion to provide a home loan where two-three applicants may hold a lower score. In many scenarios, banks tend to turn down a home loan even if you as an applicant have a credit score of more than 750 but other applicants hold a lower score of below 550.
Enhance your credit score –
Having said this, a low score generally comes across as a deterrent for most lenders to endow a home loan and hence you must ensure to enhance your score. Some necessary measures to ameliorate your credit score involve paying all your debts, raising a request for credit repair, regularizing your repayments for loans, etc. Continue reading to get an idea about ways that can assist you to ameliorate your score.
How can you enhance your credit score?
Read on below to get an idea about some of the effective ways that you can make use of to enhance your score –
Raise a request to repair your credit –
A request for credit repair can be done on your CIBIL’s site. Borrowers require raising this request in the scenario their score is low owing to irregular past repayments. A few of the reasons for this may be missed or delayed payments, technical issues caused while deducting EMI proceeds, non-receipt of the credit card statement within adequate time before the due date, etc. With a credit repair request, score can get revised according to the proofs and data available.
Clear off your dues on time –
You must always ensure to repay all your outstanding dues in full and not opt for any settlement that would be responsible for lowering your score.