Lenders want to give loans only to those borrowers who they know will be able to clear loan EMIs on time. To assess a borrower’s repayment capacity, lenders check their credit score. The credit score is a three-digit number ranging between 300 and 900 that indicates a borrower’s creditworthiness and their repayment capacity. Credit Information Bureaus in India are responsible for assigning a credit score to all borrowers and they do so based on various factors, such as the borrower’s past repayment behaviour, current debt situation, income and liability ratio, etc.
So, what is a good CIBIL score for a home loan in India? The higher an individual’s credit score, i.e. the closer it is to 900, the better are one’s chances of getting a loan on favourable terms and conditions. These days, most lenders’ home loan eligibility criteria require borrowers to have a credit score of at least 750.
Now that we know what is a good CIBIL score for a home loan, let us give you some tips on what you can do to maintain this credit score.
Tips on How to Maintain a Good Credit Score
Maintaining a good credit score requires one to practice rigorous financial discipline. It’s all about building right financial habits. Here are a few things you can do to maintain a good CIBIL score.
Always Pay Your EMIs and Bills on Time
Late payments, whether they are your credit card payments or EMIs, reflect negatively on your credit score. So, if you are someone who forgets to pay bills and EMIs on time, set up reminders or auto payments.
Keep Your Credit Utilization Ratio Below 30%
Credit utilization ratio is the ratio of credit available to the credit used. If you want to maintain a good CIBIL score, you must keep your credit utilization ratio under 30%.
Avail of Different Types of Loans
In India, like everywhere else in the world, two different types of loans are available — secured and unsecured. Secured loans are those that are backed by a collateral. Home loans and loans against property fall under this category of loans. Unsecured loans, on the other hand, are loans that do not involve security. These loans are sanctioned at high rates of interest. Personal loans and car loans fall under the category of unsecured loans. To have a good CIBIL score, it is crucial that you have a mix of both secured as well as unsecured loans in your credit bag. This will not only help you maintain a good credit score but also convince lenders that you can handle all kinds of loans. They will, therefore, offer you their best home loan deals.
Make Sure There Are No Errors in Your CIBIL Report
Credit information bureaus give credit ratings based on the information they get from financial institutions and lenders. Often it so happens that financial institutions give wrong information about a borrower, which in turn, leads to a borrower’s credit rating going down. Thus, borrowers must check their CIBIL report at least once every six months and make sure there are no errors in it.
Do Not Apply for Loans If You Can Do Without Them
While it is okay to take a loan or two, say to buy yourself a car and a home, it is not okay to rely on loans to fund all your purchases. Every time you apply for a loan, the query that your lender makes on you gets registered as a hard enquiry. Too many hard enquiries show an individual to be credit hungry and negatively impact a borrower’s credit score. Therefore, borrowers must apply for a loan only when absolutely necessary.
Never Close Old Loan Accounts
Sometimes once a borrower has repaid a loan in full, they ask the lender to close their loan account. This is a mistake one shouldn’t make. Old loan accounts help lenders assess a borrower’s credit history and repayment capacity. When you close old loan accounts, you have no credit history to show and in such a case, it becomes difficult for the lender to assess how creditworthy a borrower you are. Thus, borrowers must never close old loan accounts.
It is crucial to maintain a good CIBIL score. A good credit score does not only help you meet your lender’s home loan eligibility criteria but also get low home loan interest rates and favourable terms and conditions on your loan. If your credit score is not up to the mark, work on making it look better first and then apply for a loan. The tips mentioned in this article will surely help in this regard.