Relationship Between Home Loan Interest Rate and Credit Score

A home loan is a unique facility that’s offered by leading banks and non-banking finance companies (NBFCs) with tenors ranging up to 25-30 years. Since borrowers need to pay the consistent EMIs over a longer tenor, availing a lower home loan rate can help. However, there is a relationship between your credit score and home loan interest rates.

This post will state how your CIBIL Score affects your home loan interest rate.

What is a CIBIL Score?

A Credit Score is a three digit number and is generated by an algorithm using the credit history information. CIBIL is the major credit information agency that awards the user with a credit score. While awarding loans to banks and non-banking finance companies (NBFCs) use information from the CIBIL authority.

Why do Banks and NBFCs Need Your Credit Score to Award a Home Loan?

One of the primary things that banks and NBFCs look before sanctioning your home loan is the CIBIL Score. Your CIBIL Score reflects your repayment and borrowing habits. Thus, a lower or higher Credit Score is an important factor while processing your loan application.

What is a Good Credit Score for Financial Lenders to Approve Your Home Loan?

The Credit Score ranges between 300 and 900. If you wish to avail a home loan in India, you need to have a CIBIL Score of 750+ or more. The closer you are to 900, your prospect of getting a home loan approval improves. If you have a CIBIL Score that’s between 300 and 750, your chances of availing a home loan diminishes. More than 80% of the Indian home loan applicants get a home loan approval if they have a CIBIL Score of 800 and more.

Does your CIBIL Score affect Your Home Loan Interest Rate?

While having a higher Credit Score helps to grab quick home loan approval, one of the major benefits of it is grabbing the lower home loan interest rate. Yes, if you have managed to maintain your Credit Score, it will reward you by letting you grab a lower home loan rate.

How can You Improve Your Home Loan Interest Rate?

There are some handy tips that you can implement to help enhance your CIBIL Score:

  • Always Pay Your Outstanding Amount by the Due Date

Missing the due date of your multiple debts such as existing loan EMIs, credit card outstanding and more can leave a negative impact on your credit score. In turn, it can impact your credit score to go down. Thus, make it a point to not even miss a single payment or EMI as it will be reflected in the report.

  • Don’t Use the Full Limit of Your Credit Card

Using more than 50% of the available limit on your credit card can affect your credit card to go down. Thus, always ensure to use a lower credit limit so that you can maintain a higher CIBIL Score.

  • Don’t Ask for Increasing Your Credit Card Limit Frequently

Asking for a frequent credit card limit can brand you as a person who is greedy for a credit every now and then and it can also downgrade your CIBIL Score. Thus, don’t ask for a credit increase frequently.

The Bottom Line

You are now aware of the importance of the Cibil Score for home loan and some tips that can help you improve it and get a lower home loan rate. Happy home loan application!

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