Cibil Score for Home Loan, Relationship Between Home Loan and Cibil Score

Purchasing a house of their own is a dream of many. However, property values are incredibly high, and it may take years for individuals to save enough to buy their dream homes. As a result of many housing schemes, home loans are provided at attractive rates with tax benefits that make them lucrative for potential home buyers. Banks offer lesser interest rates because of the lengthy tenure through which they can earn interest appropriately, even if the rate of interest is lower than personal loans.However, there is also a risk of non-repayment because of the large amount and lengthy tenure. Therefore, banks must be careful before disbursing loans to potential home buyers. An excellent way to check the repaying capacity of a potential home buyer is to check the credit score. The credit score from a licensed agency is a good indicator of the repaying capability of a borrower by assessing the history of transactions related to credit, like credit cards and other loans.The creditworthiness of a borrower is determined by their credit score . Licensed organizations assign the score after taking the person's financial history into account. The credit score drops if there has been a delay in making a timely loan or credit card payments. To safeguard themselves against a potential case of default, this score enables lenders like banks and NBFCs to offer loans more cautiously and at the appropriate rate of interest.Those with strong credit may be able to borrow money more quickly, for a more significant sum, and at better interest rates than people with bad credit.

Many people around the country have credit information maintained in their databases by TransUnion CIBIL Limited. One of India's four authorized credit bureaus is this organization. Credit Information Bureau India Limited, the oldest credit rating agency in India, is known by its full name. They joined up with TransUnion, an American business, and received their current legal name, TransUnion CIBIL Limited. The higher the CIBIL score, which they assign and ranges from 300 to 900, the better. A score of more than 650 is also frequently regarded as excellent.The other Credit Information Companies were established following the introduction of CICRA in 2005. Credit Information Companies Regulation Act is referred to as CIRCA. They may slightly deviate from CIBIL in their own grading system. These three credit bureaus are:

1. CRIF High Mark Credit Information Services Private Limited
2. Equifax Credit Information Services Private Limited
3. Experian Credit Information Company of India Private Limited

The range of a CIBIL credit score is 300 to 900. A score is poor if it is between 300 and 500. An average score is between 550 and 650. Usually, a score between 650 and 750 is considered a good score, but a score over 750 is the best. Also Read: Check Your CIBIL Score for Personal Loan in 3 Easy Steps

The CIBIL score of a potential home buyer determines the chances of getting a loan application approved and getting lower interest rates. The amount of loan allowed also depends mainly on the credit score.Typically, a lower score leads to a lesser percentage of the value of the house being allowed as a loan. Someone with a higher CIBIL score could get the following benefits from a home loan:

1. Better interest rate
2. Better terms and conditions, like choosing the tenure
3. Higher loan (higher percentage of the home value)
4. Seamless processing of the home loan and faster disbursement
5. Better negotiating power

Other terms like reduced processing fee or zero pre-closure charges could be determined by the bank based on their offers and don’t necessarily depend on the credit score of the borrower.Having a CIBIL score above 650 should be good enough to get a home loan, but if the loan is higher and to get the other benefits, a score above 750 could be beneficial. The minimum credit score required to get approval on home loan applications differs since it is at the discretion of the banks. Usually, a score above 700 should get approved.When a potential home buyer submits a home loan application, the lender checks the credit score. This is called a soft inquiry. Before disbursing a loan, the lender performs a hard inquiry which has to be approved by the potential borrower. This hard inquiry will allow the lender to receive a detailed credit report of the borrower. It helps the lender make a more informed decision before disbursing the home loan.A hard inquiry has an impact on the credit score, and this impact stays on the credit report and score for 2 years. Therefore, a borrower should be mindful not to allow too many hard inquiries by reducing the number of loan applications submitted.A home loan disbursement will reduce the credit score significantly, but the borrower can easily increase this score by repaying the EMIs on time and in full. A default like a delay in payment or partial payment of EMI will impact the CIBIL score negatively.Having many outstanding loans will always have an impact on the credit score and form a part of the credit report. This also reduces the chances of getting another loan application approved easily.Also Read: What is a Home Loan Balance Transfer?

Users can view their CIBIL score once every year through the official CIBIL website. They can also pay and view the CIBIL score any number of times. They can follow these steps to view their CIBIL score:

1. Open the homepage of the official CIBIL website.
2. Select the tag “Get CIBIL score”, clickable on the website.
3. Select a plan based on how many times the CIBIL score needs to be viewed.
4. Enter basic personal details like date of birth and contact details like phone number and email ID.
5. Complete registration by entering a unique password.
6. Select the type of government-issued ID through which the verification process will be completed.
7. Enter the correct details as mentioned in the government-issued ID.
8. Verify identity by answering unique questions correctly.
9. Proceed to make any necessary payment based on the plan selected.
10. Note: if someone wants to select CIBIL score only once for free, they can skip the subscription plan process.
11. Once the registration is complete, log in using the unique credentials created.
12. Fill out the requisite details in the form and select the submit option to view the CIBIL score on the screen.

A credit score may be affected by a variety of circumstances. Knowing them may enable people to make prudent financial decisions that improve their credit and enable them to obtain favorable interest rates on any potential future loans.Here are some of the factors that may affect a credit score:

1. The history of repaying dues: The most significant negative impact on a credit score is missing an EMI or credit card payment or paying past the due date. When someone pays their credit card bill or EMI on time, it is regarded as a positive factor in their credit score; however, if they don't, it is viewed negatively. This is something that banks also look for because it is a definite sign of a person's ability to pay back debt.
2. Dues like credit card bills are paid in full: With credit cards, you can choose to pay the minimum amount due each month and carry over the remaining balance. This can also spark a lot of curiosity in some cases. Yet, failing to pay with credit card payments on time and in full can significantly lower one's credit score because it raises doubts about their ability to pay back debt.
3. Current existing loans and other dues: A person's ability to repay a loan will be lowered if they are already in debt. As a result, any unpaid bills or open loans will lower the credit score. Banks and other financial institutions will be aware that even though you have been timely paying your current debts, taking on the additional weight of repaying a loan can be challenging. They should therefore move slowly moving forward.
4. Past transactions related to credit and ability to repay dues in the past: A higher score won't result from not having any loans or credit cards. That provides banks and other financial institutions no foundation for determining whether you will be disciplined with on-time payments and able to repay debts on time. Hence, a higher credit score will be obtained if you already have a positive relationship with credit (credit cards, loans, etc.).

All bank accounts are associated with a PAN Card . Therefore, CIBIL would already be aware of the current balances and loans that are still owing. Therefore, it is always advisable to periodically check and update the dashboard that calculates the CIBIL score. This will enable people to monitor their credit histories and identify areas for improvement. Here are a few best practices that could raise your CIBIL rating.

1. Avoid too many loan applications unless you need them: There are two types of inquiries when it comes to credit - a hard inquiry and a soft inquiry. These inquiries are either made by banks or financial institutions to check the credit report of a potential borrower or by borrowers themselves to check their own credit score. A soft inquiry means when borrowers check their credit score, employers perform a background verification or when financial products assess their audience for marketing and sales purposes. A hard inquiry requires the explicit approval of the person whose credit report is being generated.This is usually undertaken before disbursing a loan or in response to a new credit card application within 2 years. Too many hard inquiries are considered to be representative of a sudden need for money and an increase in debt which ends up reducing the credit score. The effects of a hard iniquity typically last 2 years on the check score. Borrowers can plan their debt in such a way that they space out the hard inquiries by avoiding additional debt within 2 years of existing ones.
2. Always limit the expenditure on credit cards to 30% of the credit card limit: If someone has multiple credit cards, they should split their usage so as to avoid crossing the 30% limit on any of the credit cards. Though a credit card limit may be very high and the user can take full advantage of it as long as they are repaying on time, it is financially wise to use only 30% of the total available credit limit so that it doesn’t negatively affect the credit score but keeps creating a healthy credit history as well.
3. Keep a check on the due date for clearing dues (EMIs and bills): Even a single day of late payment on credit cards and EMIs might lower your credit score. In order to ensure they don't forget a payment, borrowers should set up auto-debit services. Even though there is no additional expense, credit card bills should never be carried over and must always be paid in full.