What is a Good Credit Score for a Home Loan?

A credit score is a numeric portrayal of your credit history and conduct, indicating your proficiency in handling debts and meeting repayments. It mirrors your adeptness in managing financial obligations. When seeking a home loan, lenders regard your credit score as one of the crucial elements. Subsequently, it is important to understand the what’s and how’s surrounding credit scores for home loans.

But what is a good credit score for a home loan in India? What if you are facing rejection due to a poor score? We will answer all your doubts in this blog.

What is the Credit Score Range and its Meaning? 

In India, the credit score scale spans from 300 to 900. As the score approaches 900, the more favourable it becomes. Four leading credit bureaus in India calculate credit scores: TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. These bureaus collect information from various sources, such as banks, NBFCs, credit card companies, telecom operators, etc., and compile it into a credit report.

This report provides information about your personal and debt-related details. Each credit agency uses its algorithm to compute this score using the information from your credit report. To get the score’s range, let us consider the example of a CIBIL score.

Credit Score Range Meaning Impact
750-900 Excellent You have a very good credit history and a high chance of getting your loan application approved. You may also get lower interest rates and better terms from lenders.
700-749 Very good You have a good credit history and good approval chances. You may also get favourable loan terms.
650-699 Fair You have an average credit history and moderate home loan approval chances. If approved, you may face some difficulties in getting the best interest rates and terms.
600-649 Doubtful You have a below-average credit history and a slim chance of getting home loan approval.
Below 600 Poor You have a poor credit history and a very low chance of getting approved. You may need to improve your credit score significantly before applying for any loan.

How to Boost Your Credit Score for a Housing Loan? 

If you are looking to apply for a housing loan and have an average credit score due to any reason, there is no need to stress. There exist several ways to improve your credit score required for home loan.

  1. Maintain a Healthy Mix of Credit

Your credit mix represents the various types of credit in your financial portfolio. An ideal mix includes secured loans (like gold or car loans) and unsecured loans (like personal or credit cards). Balancing both secured and unsecured loans demonstrates your ability to manage diverse debt responsibilities and enhance your credit score.

Suppose your portfolio consists of two personal loans and one credit card. In this case, it is a good idea to introduce a secured loan like a gold loan before applying for a home loan. This step can help diversify your credit mix and strengthen your financial profile.

  1. Keep Your Credit Utilisation Ratio Low

Your credit utilisation ratio is usually the portion of your available credit limit that you use. If you have a credit card with a limit of Rs. 50,000 and use Rs. 25,000 of it, this ratio is 50%.

A high credit utilisation ratio indicates that you depend on credit and may face difficulty repaying your debts.

If you have a credit card with a limit of Rs 50,000, try not to use more than Rs 15,000 (30%) at any given time.

  1. Rectify Credit Report Errors 

Your credit report contains all the information related to your credit history and activity, such as your personal details, account details, payment history, and inquiries. Your report may have errors or discrepancies due to human mistakes or technical glitches.

If you notice any inaccurate information, raise the dispute immediately with the credit bureaus. If the error is related to the loan you have already closed, connect with the lender from whom you have financed and request them to send a loan closure report to the credit bureau.

  1. Avoid Multiple Applications

Whenever you request a loan, the lender checks your credit report with a hard enquiry to see if you are good at managing debt. This hard enquiry slightly reduces your credit score and shows up on your report for two years.

Our suggestion is this: after you apply, be patient and wait for the lender’s answer. If they decline your application, find out why and work on those things before applying for another loan. This way, you can get better chances of approval next time.

Also read: What is Home Loan?

  1. Consolidate Your Debts

If you have several debts or credit cards with high-interest rates and different due dates, you may find managing and paying them on time challenging. This can lead to missed or delayed payments, a high credit utilisation ratio, and a low credit score. To avoid this, you can consolidate your loans into one debt with a lower interest rate and a longer tenure. This will help you reduce your monthly outgo, simplify your repayment, and improve your credit score.

  1. Opt For a Consumer Finance Loan

Sometimes you might see “NA” on your credit score. This means “Not Applicable.” It shows up when you have not yet borrowed funds from a recognised lender. Since lenders are hesitant to lend to someone who is borrowing for the first time and does not have a credit history, it is a good idea, to begin with a consumer finance loan.

This type of financing product enables you to purchase home appliances, smartphones, gaming accessories, and similar goods. The repayment period for this loan is brief, and the interest rates are also lower.

  1. Track Co-applicant Payments

Sometimes your co-applicant could be the cause of not so good credit score for home loan. In the scenario of a joint loan, if the co-applicant delays or misses EMIs, their actions affect your creditworthiness too.

Maintain open communication with the co-borrower. Evaluating their repayment ability independently before including them as co-borrower on a loan application is wiser.

How Much Credit Score is Required for a Home Loan?

Now that you are well aware of the significance of credit score for a home loan, you must be wondering how much credit score is required for a home loan. There is no fixed credit number for this. The ideal credit score required for a home loan in India is not standardised, given that various lenders have distinct eligibility prerequisites and risk preferences. Nonetheless, most lenders tend to favour applicants with a score of 750 or higher. A higher credit score enhances the likelihood of securing approval for a home loan, demonstrating commendable repayment records and minimal default risks.

Also read: Apply for Instant Personal Loan Online 2024

Conclusion

A good credit score is essential for getting a home loan in India, as it reflects your creditworthiness and repayment behaviour. A higher score can aid you in acquiring a home loan easily, at lower interest rates and better terms. A poor score can make it challenging to get a home loan or result in higher interest rates and other conditions. The range of a good credit score for home loan can vary from lender to lender. So review your credit score to see if it fits the requirement of your chosen lender. You can review your credit score without paying anything from any of the four bureaus once every year.

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