If you want to take a home loan, you cannot afford to ignore the Credit Information Bureau of India Limited (CIBIL) score. The CIBIL score helps lenders decide whether to grant you a home loan.
Will you lend lakhs of money to a friend if you have heard that his repayment track has always been clean? May be not. But if you have a registered and an authorised agency which is into the business of establishing credit scores based on reliable facts and sources of information, then you might turn out to be a ‘friend indeed’ to this ‘friend in need’.
This is exactly why banks and financial institutions check CIBIL scores. It gives lenders a snapshot of your credit health and history, and your willingness and ability to repay debts on time.
What is the CIBIL score, and how is it calculated?
The CIBIL score plays a very important role in Indian financial system because it helps home loan applicants secure credit quickly. The CIBIL score is a numeric figure that sums up the credit history of prospective home loan buyers and helps them to get their home loan applications approved.
CIBIL scores are determined based on several facts and details like the borrower’s payment history, number and types of loan accounts, outstanding and opening loan amounts, credit enquiries and guarantors on the loan, if any.
Banks and financial institutions have their own benchmarks that counts as a good CIBIL score. For example, there may be lenders who reject home loan applications with a CIBIL score of 550. There may be lenders in the same market who consider cases with a score of 550 for assessment (i.e. after scrutinising applications based on other parameters).
What makes the CIBIL score so important?
CIBIL scores are very important when it comes to taking loans. When you apply for any kind of home loan product, the first thing loan officers do is to download your CIBIL report to determine your credit worthiness.
If your CIBIL score is high, the odds of getting a home loan are strong, if other factors work in your favor too. You can also bargain on some fees or charges if the lender finds property norms, credit history and income factors satisfactory.
But if your CIBIL score is low, your other home loan eligibility norms must be adequate enough for the lender to grant you the home loan amount you need.
How does CIBIL score affect your home loan?
- Home loan, mortgage and other approvals
CIBIL scores are an indispensable part of getting a home loan sanctioned. Lenders need to know that you are a credit worthy applicant who they can afford to lend to. Nothing proves to be more reliable (at an initial stage) than a good CIBIL score. An unsatisfactory CIBIL score always weakens your chances of getting the home loan without any hassles.
- Strong bargaining tool
A good CIBIL score can be used as a strong bargaining tool. If your credit score along with other eligibility parameters are strong (like age, income, credit history, repayment track, property norms etc.), then you can always use those factors to bargain on various fees and charges involved in the home loan sanctioning processes. No lender would want to lose a highly eligible customer with a good credit score.
- Interest rates
All home loan applicants try to get a loan at the lowest possible interest rate. A good CIBIL score will help you get the best possible interest rates and terms.
- Better home loan insurance deals
A good CIBIL score can also fetch you home loan insurance products at low premiums.