Are you planning to take a home loan? In India a score of 700 or more is regarded as the minimum criterion expected to be met by the borrower with the lenders, with a marginal scope of approving loans even for people with lesser marks, depending on their holistic financial state.
The score, which usually ranges from 300 to 900 points, tests one’s capability to pay debts. The significance of a credit score is that it indicates just how creditworthy an individual is.
The credit score is commonly referred to as a CIBIL score; however, it is also generated by several credit bureaus, including TransUnion CIBIL, Experian, Equifax, and CRIF Highmark. Lenders often assess applications using data from more than one bureau.
How much credit score is needed for a home loan?
Lenders prefer a credit score of at least 700. However, a score above 750 is considered ideal when seeking the best offers on home loans. Financial institutions also consider other factors, including the source of income, assets, and the value of property, before loan approval.
Five key factors to check before taking a home loan
- More important is the strength of one’s credit profile and credit score. The quality of the credit profile and score is important, and a high rating further boosts approval chances (with a rating above 750 being considered excellent).
- The stability of your income matters. Ensure your monthly income comfortably covers home loan repayments without financial strain.
- Carefully look beyond just the interest rates. Check for processing fees, hidden charges, insurance expenses, prepayment penalties and any applicable fees if you miss your due dates, as this will help you better understand the home loan you are applying for.
- The tenure of your loan is also critical. Be clear: a longer tenure can reduce monthly EMIs but can still significantly increase the total interest you pay on the loan. Whereas a shorter tenure reduces total interest costs but can force you to pay more on a monthly basis, thus reducing your financial flexibility. You should choose wisely.
- Understand foreclosure rules and regulations, as this will help you repay the loan early if you wish. This approach can also go a long way to keep you stress-free in life.
How can you improve your credit score?
However, an individual can raise a low credit score through disciplined financial behaviour:
- Pay your dues promptly.
- Cut outstanding balances.
- Avoid posting credit too often.
- Check credit reports regularly for inaccuracies.
