Discover your Ideal Credit Score for a Home Loan!

Credit score for home loan

Do you want to buy a house?

If you answered yes, there are a few things you should think about before purchasing a new home!

The first are your budget, location, the home loan interest rate, the total number of years to repay the loan, the amount to be taken from the bank, and, most importantly, your credit score. When these factors are added together, the credit score receives 50% of the weightage because it defines the user’s creditworthiness.

Good or bad, your credit score will determine whether or not you will be granted a loan and under what terms and conditions.

So, if you are struggling to figure out the ideal credit score for a home loan, continue reading the blog. Also, learn the five most important things to do before applying for a home loan.

What is the Ideal Credit Score for Home Loan?

The ideal credit score for a home loan is 750 or more. A good credit score increases the chances faster home loan approval process. However, a good credit score is not the only factor behind the loan approval process. It also depends upon the lender’s terms and conditions and the eligibility criteria. Borrowers who meet the requirements are eligible for a lower rate of interest on the loan amount they obtain, as well as other benefits.

What Does Your Credit Score Say About Your Home Loan Eligibility?

The table below differentiates between credit score ranges and what they indicate about home loan eligibility.

Credit ScoreCredit Score Health
300-549Poor credit score
Portrays irregular payment behaviour
Gives an idea about missed/delayed credit payments
Highlights higher credit dependency
Chances of turning into a defaulter
550-649Fair credit score
Shows irresponsible credit payment behaviour
Shows borrower’s multiple hard inquiry attempts (if any)
650-749Good credit score
Depicts a responsible behaviour towards credit or loan EMIs repayment
Eligible for credit and loans
Low risk of turning into a defaulter
Reasonable rate of interest is charged against the loan, however, the borrower will not get a higher credit limit
750-900Excellent credit score
Little or no chances of turning into a defaulter
Highlights responsible credit repayment behaviour
Shows no default payments made
Error free credit report
Lower rate of interest
Higher negotiation power

Why is Credit Score Important for Home Loan?

Before processing a loan application, banks and financial institutions always look at the borrower’s credit score and repayment history.

CIBIL collects and organises all information about a user’s credit history and makes it available to banks and financial institutions. The data is gathered through banks and financial institutions. CIBIL then processes the information on a monthly basis and generates a detailed credit information report (CIR) of the user’s credit history.

Banks and financial institutions then use the CIR to determine whether or not to approve the borrower’s home loan application and at what interest rate. A good credit score and CIR report can assist a borrower in obtaining the desired loan amount (80 percent of the actual loan amount).

Because credit score showcases the creditworthiness of the user, it becomes the most important factor considered for home loans.

How to Improve Credit Score for a Home Loan?

Follow the guidelines to improve your credit score for a home loan:

  • Examine your credit report twice a year
  • If there is an error or issue with your credit report, file a dispute. Resolve the comments as soon as possible
  • Refrain from making multiple hard inquiries
  • Do not leave any unpaid balances
  • Set reminders for loan EMIs and credit card payments
  • Do not apply for a new loan immediately after the rejection of your previous loan application
  • Always pay your credit card bills on time
  • Maintain a clean, disciplined, and strict repayment history
  • Limit your credit utilisation ratio to 30%
  • Submit the cheque to banks or financial institutions a few days before the due date

*If you follow the best practises listed above, your credit score will improve over time.

Is it possible to get a home loan if I have a low credit score?

A person with a bad credit score can still get a home loan but at a higher interest rate. Banks, lenders, and financial institutions often charge applicants with low credit a higher rate of interest.

The reason for this is that credit score dictates the process of home loan application because it is one of the most important factors considered by banks, lenders, and financial institutions.

What Documents Are Necessary for Home Loan Eligibility?

To be eligible for a home loan, applicants must submit the following documents. The documents may differ from lender to lender, but they are the standard documents used to verify home loan eligibility.

  • Applicant consent to pull their CIBIL report
  • KYC documents that have been self-attested
  • Bank statements
  • Salary slip for the previous three months
  • Returns on IT investments over the last four years
  • Property papers

Keep these 5 things in mind when applying for a home loan

Before applying for a home loan, keep the following points in mind:

  • Examine your credit score
  • Maintain a healthy balance of secured and unsecured loans
  • Compare a few banks based on home loan interest rates, benefits, EMI options, and other factors
  • Refrain from applying for multiple home loans at the same time

Check Your Credit Score Now

FAQs
What is a good credit score for a home loan?
A credit score of 750 or higher is considered good for a home loan.
Is it possible to get a home loan with a 700 credit score?
A credit score of less than 750 makes the home loan application process more difficult and expensive (in terms of interest rates). As a result, before applying for a home loan, it is best to first improve one’s credit score.
Can I get a home loan with a credit score of 500?
Lenders, banks and financial institutions often consider credit scores more than 750 ideal to provide home loans. A credit score of 500 falls into the category of poor credit. As a result, it is important to improve one’s credit score before applying for a home loan.
Why is a credit score important in the home loan process?
A credit score is one of the most important factors that define a user’s creditworthiness, and it is always taken into account by banks, financial institutions, and lenders. A good credit score increases the chances of obtaining a home loan, whereas a bad credit score makes the home loan process extremely difficult, if not impossible.
0 Shares:
You May Also Like