Your CIBIL or credit score directly affects your home loan interest rate.
This is because your score represents your credit history and a good score indicates that you have been responsible for credit in the past. Your credit score will be high if you have repaid your old debts, be it loans or credit card bills, on time, have taken a mix of secured and unsecured loans, and have a low debt utilisation ratio.
The home loan interest rate the lender charges you, whether competitive or high, will depend on the score bracket you fall in. This impacts your EMI and the affordability of your home loan. You need to maintain a good credit score for a stress-free borrowing experience.
Read on to understand what interest rate you can expect based on your credit score. Remember using the home loan EMI calculator to calculate your home loan EMIs in advance.
Credit score of 760 and above
This is the best credit score for home loans and assures you that your lender will offer you the best interest. It indicates that you have managed your debt successfully in the past and do not have other debts that are large enough to impact your potential home loan repayment.
If you have a score in this range, maintain it. You may be eligible to receive a nominal interest rate from 8.50%* to 14.00%* p.a. when you have a CIBIL score of 760 and above.
Credit score between 700 and 760
A score in this range is considered to be good to moderate, depending on your lender. With your score in this range, you can successfully get an approval for a home loan but at a slightly higher rate of interest.
Improve your creditworthiness if you want a lower rate of interest. You can check if your past loan accounts have been successfully closed by checking your CIBIL report and pay special attention to lowering your credit utilisation ratio. When you use more credit, your ratio is higher, and this lowers your score.
Credit score below 700
A score below 700 is considered modest and mostly attributed to first-time borrowers. For example, you may have this score if you have no credit history, and lenders would still approve your home loan at a higher interest rate.
There are various ways in which you can tackle this.
One of the most common things to do is take a collateral-free loan such as a personal loan and repay it on time to build your score. Another is by taking a home loan with a lower LTV or loan to value ratio. An ideal LTV is 80% or more in such cases when you come up with 20% of your home’s value and borrow 80% as a loan. With a lower credit score, lower the LTV, and better your chances are of getting a home loan at a nominal interest. Check your credit score before you apply for a home loan and select a lender who offers competitive interest rates along with additional benefits on repayment. Bajaj Finserv Home Loans have simple eligibility criteria, offer high-value loans at nominal interest, and have facilities like a three-EMI holiday.
Inculcate the following financial habits to improve your credit score for a home loan:
- Acquire fewer debts before you take a home loan
- Ensure you pay your credit card dues in full
- Increase your credit card limit if you have higher usage
- Repay EMIs for existing debts on time
- Avoid making too many loan enquiries right before you apply for a home loan
Now that you know how crucial your credit score is to make your home loan EMIs more affordable, keep a check on it, and work on improving it.
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