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Low Credit Score & Want to Apply for a Home Loan? Here’s What You Must Do.

CIBIL score is one of the most accepted scores in India granted to businesses and individuals, which shows your credibility as a potential Citibank home loan applicant, Bank of Baroda home loan applicant or home loan applicant for any other lender.

While granting the home loan, lenders factor in your credit score as they consider it to be the most crucial parameter for evaluating your home loan application. It endows assurance to the lenders that you as an individual can make home loan repayments on time and in full. CIBIL score ranges anywhere between 300 and 900 and is computed depending on distinct parameters like the loan history, your credit mix, your repayment behaviour, etc. The higher your credit score, the higher your chances as an individual too of availing a home loan approval. Apart from this, your credit score and distinct other factors, various property parameters are even factored in by lenders while assessing your home loan deal. Continue reading here to understand what role CIBIL plays in getting you approval on your home loan application. Also, check out how can you ameliorate it and get a home loan with zero hassles.

Which figure or range in a CIBIL score range is considered low?

There is zero standard definition for a low CIBIL score. Usually, a credit score, which is below 600 is looked upon as low by home loan lenders. However, the eligibility for CIBIL score might differ from one lender to another. A minimum CIBIL score of 750 is usually desired by lenders for sanctioning a home loan. Distinct lenders might have their own set of criteria for deciding a minimum credit score but at least 750 is required by many lenders in India. If you are one of those with a credit score ranging anywhere between 700 and 750 or above, you may be looked upon as the least risky and may be offered a home loan approval.

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In the case you are an individual with a score in the range of between 650 and 700, then you may be looked upon as moderately risky by lenders and might be eligible for the home loan with one or higher conditions like a higher rate of interest, lowered loan proceeds, and a higher processing charge and other fees, etc. than those applicable to the individuals with a credit score of over 700.

A credit score of below 650 is looked upon as high risk and lenders might turn down your home loan. Now, this limit i.e., 650 might differ from one lender to another. Few private or nationalised banks might come with a cut-off equaling 650, while few HFCs (housing financial companies) might be lenient and consider a credit score equaling 550 as a lower limit.

CIBIL score generally is the deterrent for many lenders to endow a home loan deal. Continue reading to get an idea about the effective ways of enhancing your credit score with ease.

How to avail a home loan with a lower CIBIL score?

Here are some of the ways that you may use to get a good home loan deal despite a low score.

Approach an HFC for a home loan – 

HFC stands for housing finance companies. It is a financial institution that offers loans to you the same as a bank but does not conduct other verifications like banks like checking your income in-depth, assessing your credit report, etc. A few of the most prominent NBFCs include Bajaj Finserv, Muthoot Fincorp, Tata Capital, HDB Financial services and others.

HFCs are even a kind of NBFC but deal just in home loans. LIC housing finance, Dewan housing finance limited (DHFL), Indiabulls housing finance, HDFC (Housing Development Finance Corporation) etc. are a few of the main HFCs present in India.

Banks generally hold strict regulations than NBFCs, when it is to approving home loan applications depending on your CIBIL report. Thus, applying to HFCs for a home loan has a higher chance of getting your loan approved than banks.

For example, as of 2022 in August, the minimum CIBIL score requirement to apply for Bank of India was 700 while LIC had a CIBIL score requirement of below 650. However, it must be noted here that usually, HFCs levy a higher rate of interest than banks. For example, as of 2022 in August, DHFL levied a minimum rate of interest of 10.50 per cent per annum while the State Bank of India (SBI) levied a minimum rate of interest of 8.40 per cent per annum.

Add in a co-applicant having a good credit score – 

It is a very common practice to apply jointly for a home loan with a co-applicant for increasing your eligibility chances. If you hold a lower score and your co-applicant or your guarantor has a score of over 750, then a few of the financial institutions might approve the home loan application. However, it must be noted that this method is not an assured way to avail a home loan with a low score. Such cases are extremely rare and are dependent on the bank’s discretion to approve the home loan where one of the loan applicants holds a lower credit score.

Enhance your score – 

Having said that, holding a low score is generally a deterrent for most lenders to offer a home loan, you must ensure to enhance your CIBIL score all the time. A few of the best ways to ameliorate your credit score are paying your debts, regularizing your loan repayments, raising the credit repair request and others.

Continue reading to understand more of the ways to ameliorate your credit score.

How to enhance your credit score?

You can increase your credit score by periodic checking of your report to understand your credit standing. In the case of any issue, ensure to report the same to the concerned authority for the instant improvement of your score. Also, to maintain a good score, ensure to timely make your outstanding due payment in full, check the credit mix, avoid multiple credit inquiries, etc.

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