A home loan is a popular financing option that helps you purchase your dream house. As home loans involve a substantial amount, lenders evaluate your credit score. In fact, this is one of the main criteria considered by banks and housing finance companies when approving your home loan.
Lenders consider your credit history and creditworthiness before approving and deciding the terms of your loan. A great credit score between 750 and 900 implies you have a good history of repayment and increases trust in your ability to service the loan.
Read on to understand the numerical representations of credit scores, what they represent and why this matters for home loan approval.
Why is Credit Score Important for Home Loans?
There are two primary reasons why lenders depend on your credit score when approving your application for a housing loan.
Longer Loan Duration: As a borrower, you must demonstrate your reliability to banks and NBFCs offering home loans. This is because home loan tenures can extend up to 30 years. This is a long time, and lenders need to be sure you will repay your home loan responsibly and on time.
Since your credit score demonstrates your past record of credit repayment and behaviour, lenders rely on it to assess your risk profile.
Substantial Loan Amount: A housing loan normally involves a large principal. This may start off at around ₹20 Lakhs and go up to a few Crores. Thus, the risk being undertaken by lenders is also higher. This is why your credit score serves as an evaluation of your trustworthiness as a borrower.
Also, remember that your credit score is lower if you have a large amount of existing debt. Lenders are wary of approving home loan applications of borrowers who are already repaying loans that take up a large chunk of earnings.
Guide to Credit Score Range [EW1]
Here is the range for a CIBIL score, the credit score assigned by TransUnion CIBIL, and what they signify to home loan lenders.
Excellent: 750 to 900
Individuals within this range have excellent credit scores and are more likely to have access to the best home loan terms and interest rates.
Very Good: 700 to 749
This is also a great credit score and positions an applicant as a low-risk borrower. Such borrowers can qualify for desired housing loan financing at competitive rates.
Fair: 650 to 699
Individuals in this range have a fair credit score. These applicants can access credit at reasonable terms.
Poor: 601 to 649
Individuals with these credit scores may face limited options and higher interest rates on home loans.
Very Poor: 300 to 600
Individuals in this range are recognised as high-risk borrowers and may not qualify for a home loan.
The Impact of Credit Scores on Your Home Loan
There are various positive impacts that a good credit score can have. Here are the 3 main benefits of having a good score when you apply for a housing loan.
Quicker Home Loan Approval
With a good credit score, lenders recognise your creditworthiness and consider you a trustworthy borrower. Thus, you can benefit from quick approval on your home loan application. This helps you buy your dream home faster!
Affordable Home Loan Interest Rates
A higher credit score indicates a positive credit history and diligent repayment behaviour. Thus, it helps you qualify for more competitive home loan interest rates. This helps you repay more comfortably as it brings down your EMIs.
Favourable Home Loan Amount and Terms
Your credit score also impacts the loan amount and terms you can obtain. A good credit score helps you secure a higher loan amount on favourable terms, including a longer repayment tenure.
With the loan amount of your choice, you can purchase a home without compromise. In addition, a longer tenure aids you in repaying your loan more easily as it reduces your monthly instalments.
Now that you are familiar with the role of a credit score and its importance in the home loan approval process, try to maintain a good score. Boosting your credit score requires patience and discipline, and you can get there in time. While having an optimal credit score is one of the essential parameters for hassle-free loan approval, there are other important criteria lenders consider, such as your income.
To get an idea of the different eligibility criteria that various lenders have and get the best home loan offer, check the Bajaj Markets App. Download the app from the App Store or Play Store to get started and apply for home loans offered by top lenders with ease online.
