Obtaining a home loan, although rendered simple due to accessibility and tailored repayment options, can be a hurdle if one does not measure up to the lender’s eligibility standards. From this perspective, your CIBIL score or credit score perhaps receives maximum attention since it is one of the key considerations during housing loan processing. Therefore, it is essential to be aware of the scoring system. Your CIBIL score depends on several significant components, prominent among them being your repayment history. When evaluated in combination, these aspects help lenders ascertain the lending risks associated with every loan application.
What Is CIBIL Score?
A credit report is an extensive documentation of a borrower’s previous loan paybacks. It is a record obtained from numerous entities such as governments, banks, credit card firms and collection agencies. The ‘Accounts’ and ‘Enquiries’ sections of your CIBIL report contain credit history details like your credit accounts, past repayments, pending dues and more. This information is used to calculate your CIBIL score, which is a three-digit numerical encapsulation of your overall credit varying between 300 to 900.
Importance of Your CIBIL Score
Individuals with credit scores closer to 900 have greater chances of loan acceptance. The normal requirement of CIBIL score for home loans is 750 or above. Applicants who fall in this range gain quicker approvals of larger loan amounts at lower interest rates. Conversely, applicants with poor credit scores may have to contend with higher interest rates and bigger borrowing costs; and at times, even loan rejection. Thus, based on the information received from lending institutions pertaining to past loans and repayments, credit scores indicate your financial health and credit worth. A flawless credit record facilitates attractive loan sanctions.
How is Your CIBIL Score Determined?
Credit Bureau Information (India) Limited, better known as CIBIL is among the four prominent credit data agencies authorised by the Reserve Bank of India along with CRIF Highmark, Experian and Equifax. They maintain credit data of individuals and companies and provide this information upon request in the form of credit records generating a credit score for each report.
They compute your CIBIL score on the basis of certain crucial parameters such as:
- Financial history – Your credit score may take a hit when you make late payments or default on your EMIs.
- Credit mix – Holding a balanced credit ratio benefits your rating.
- Multiple credit inquiries – Several loan inquiries around the same period might lower your score since it suggests overdependence on credit.
- High credit utilisation – Excessive credit usage adds to the debt load and is detrimental to your economic wellness.
How to Improve Your CIBIL Score
Your whole credit history and previous payments determine your CIBIL score, which in turn will go on to affect your ability to obtain future credit. This is the main reason one must maintain a good CIBIL score through regular credit habits. Otherwise, if you have lower credit scores, consider the following measures to boost them:
- Always pay your credit card bills and loan EMIs on schedule; missed or delayed payments lead to a rapid score drop.
- Limit your credit usage to 30% to manage your credit effectively.
- Diversify your credit portfolio. Strive to obtain a healthy mix of secured loans such as credit cards and house loans as well as unsecured loans like personal loans. Too many unsecured loans might prove unfavourable.
- Apply for new credit as per actual need to denote responsible financial management.
- If you hold a joint house loan or are a guarantor/ co-signor to one, do note that you share equal responsibility for late payments on these accounts. So keep track of them. Any carelessness on the part of the primary borrower may be a red flag for your credit report.
- Review your credit history often. Check your credit report and score to identify any errors that may hurt your loan application. In case you find any inconsistencies, notify your lender and/or file a dispute on the CIBIL website for quicker resolution.
Summing Up
Implementing these measures diligently requires patience and time since it may take six months to a year before your CIBIL score improves. In the meantime, keep a close eye on your credit profile to monitor your progress. You can carry out a credit score check from time to time through the official websites of any credit agency or lending company. While lenders and financial portals may extend free access to CIBIL scores anytime; credit bureaus offer one free report in a year, thereafter individuals will need to pay a nominal fee to view their records.
