Improve CIBIL Score for Better Home Loan Options

Home is a fundamental requirement for every individual. Everyone wishes to own a home at some point in life or the other. Applying for a home loan is the most common way to finance the purchase of a home.

Lenders take into account the applicant’s CIBIL score while evaluating a loan application. Therefore, it is highly recommended to maintain a high CIBIL score when applying for a loan. The following sections will focus on the ways to improve CIBIL scores for better home loan eligibility.

CIBIL score table

The following table shows the CIBIL scores and what they indicate: 

  • 300 – 500: Poor (chances of loan approvals are minimal) 
  • 550 – 650: Needs attention (few loan options are available but with high-interest rates) 
  • 650 – 699: Satisfactory (high probability of getting a loan application sanctioned) 
  • 700 – 749: Good (high possibility of getting a loan application sanctioned with lower interest rates) 
  • 750 – 900: Excellent (very high possibility of getting the loan application sanctioned with the lowest interest rates)

Ways to improve CIBIL score 

The following points explore effective ways to improve the CIBIL score: 

  1. Check CIBIL reports minutely for inaccuracies: CIBIL reports may contain certain inaccuracies which may hurt one’s credit scores. So, people must check their CIBIL reports minutely and raise a dispute if they notice any wrong information in their credit reports. CIBIL will incorporate the correct information in the report which will improve the person’s credit score.
  2. Never miss a loan EMI: Loan repayments in time play an important role in improving an individual’s CIBIL score. If someone forgets to pay EMIs on time, setting a reminder on a phone or automated payments is an effective solution.
  3. Limit credit utilization: People must focus on restricting their credit utilization below 30%. A credit utilization ratio of 40% or higher can have a negative impact on one’s CIBIL score. Credit card holders can set their card limit high enough to ensure that their credit utilization never rises above 30%.
  4. Pay credit card bills on time: Paying credit card bills within the stipulated timeframe helps to improve CIBIL score. By using a credit card for everyday purchases, anyone can build a substantial score through small but regular credit usage.A useful suggestion for applicants is to pay off credit card bills on time for at least 6 months before applying for a large loan. This provides sufficient time to attain a good credit score.
  5. Avoid taking on too much debt at once: Borrowers should always avoid taking on too much debt at once. It is prudent to apply for a minimum number of loans at a given time. Applying for multiple loans at the same time reflects mismanagement of finances, which leads to a drop in credit scores. It’s always ideal to repay one loan before applying for another.
  6. Don’t display credit-hungry behaviour: Carrying on from the previous point, every time multiple credit enquiries are made for an applicant within a short period, it indicates credit-hungry behaviour. It lowers one’s CIBIL scores and should be avoided at all costs. A much better option is to do sufficient research and opt for the right lender for a home loan.
  7. Maintain the right mix of secured and unsecured loans: Maintaining diversity in a credit portfolio is important as it helps to achieve better CIBIL scores. To achieve this purpose, it’s important to have a healthy mix of secured and unsecured loans with both long and short tenures. But borrowers should ensure they have enough funds to repay short-term loans after repaying the long-term loans. They should calculate their existing liabilities before applying for new loans.
  8. Track payments of co-applicants and joint account-holders: People must regularly monitor their co-signed and joint accounts because they will be held liable for missed payments in such accounts. The joint holder’s or guaranteed holder’s negligence in repayments can have a detrimental effect on one’s CIBIL report and lead to a low score.

Why should home loan applicants improve CIBIL scores?

Lenders consider a CIBIL score above 750 as excellent. Applicants with such high CIBIL scores are the most favoured by financial institutions as they have good financial behaviour and repayment history. 

There are many reasons why home loan applicants should improve CIBIL scores. Here are some of the important benefits:

  • The most important benefit is quicker loan sanction and disbursal.
  • Apart from obtaining easy approval for loan applications, it helps home loan borrowers access a high loan amount.
  • A good CIBIL score for a house loan helps people to negotiate favourable terms and conditions.
  • Moreover, lenders don’t impose restricting terms and conditions on applicants with a high CIBIL score.

Other benefits of good CIBIL scores

Besides home loan applications, having a good credit score offers these benefits:

  • A good CIBIL score helps to get better deals on credit accounts. In other words, it will help a person to get higher limits on credit cards. 
  • Sometimes, landlords check the CIBIL score of their prospective tenants to check their financial status. So maintaining a high CIBIL score makes it easier if a person is looking to rent an apartment. 
  • Some prospective employers check an individual’s credit score during screening. It helps them determine how financially disciplined the candidate is. 
  • A high CIBIL score can help people to get better deals on their home and car insurance premiums. While an insurance company does not solely rely on the CIBIL score to set a premium, it helps to have a high CIBIL score. 

Relationship between CIBIL score and interest rates 

Home loan applicants should remember that CIBIL scores share a crucial relationship with interest rates. Many lenders offer lower interest rates to applicants with a CIBIL score above 750. 

This is mainly because a high credit score indicates that the borrower is highly creditworthy. Banks and NBFCs quickly sanction applicants’ loans with the assurance that they will be able to repay the loan on time.

Applicants looking for quick loan approval can also look for pre-approved offers. Financial institutions provide these offers to creditworthy customers for products like home loans and loans against property. One only needs to enter a few basic details to check their eligibility for such offers.

As mentioned in this article, it is important to improve the CIBIL score and maintain it primarily because it indicates financial discipline. It has a significant impact on an individual’s home loan eligibility. For instance, it shares a crucial relationship with interest rates— the higher one’s CIBIL score, the more favourable the home loan interest rates. 

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