Minimum Credit Score for Home Loan

Credit score for home loan

Are you planning to buy a home?

If yes, there are a few things you should consider before buying a new home!

First is your budget, location, best bank to get a loan, the total number of years to return the loan, amount to be taken from the bank and most importantly, your credit score. The focus is given to the credit score because it defines the creditworthiness of the user.

Your credit score will determine whether you will be given a loan or not and on what terms & conditions.

So, what should be your ideal credit score for a home loan?

If you are not sure about this, we will explain what should be the ideal credit score for a home loan. But, before that, let us quickly understand the importance of a credit score.

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 of acquiring a home loan a little faster with other advantages like lower interest rates, desired loan amount and more. When the ideal credit score for a home loan is 750, the credit score also depends on whether it meets the lender’s terms and conditions or not. However, a good credit score or higher credit score always increases the chances of getting a loan faster and at good interest rates.

What does your Credit Score reflect about Home Loan Eligibility?

The table below distinguishes between the range of credit score and what it reflects about the 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
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
High-interest rate is charged against the loan
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

What is the Importance of a Good Credit Score?

The following points define the importance of a good credit score and what benefits it can offer to a borrower-

  • It depicts the responsible behaviour of the borrower in the credit repayment process
  • A good credit score can be earned if the credit repayment history is strict and strong
  • Lenders, banks and financial institutions mandatorily take a look at the borrower’s credit score before rejecting or approving a loan or credit card application
  • A good credit score increases the chances of loan or credit card approval
  • A borrower with a good credit score is given preference over an applicant with a low or fair credit score
  • A borrower with a good credit score is often seen as a good debtor
  • With a good credit score, the borrower can simply negotiate with the lenders, banks or financial institutions to raise the credit bar
  • Banks, financial institutions, lenders prefer to offer top-notch credit cards to borrowers with good credit score
  • Upon request, a borrower’s credit utilization ratio can be increased
  • A good credit score makes a borrower acquire the desired loan amount along with the power to negotiate the credit amount
  • Banks, lenders and financial institutions charge a lower rate of interest on the borrower’s acquired loan amount

Why is Credit Score Important for Home Loan?

Banks and financial institutions always have a look at the borrower’s credit score and repayment history before processing the loan application.

CIBIL collects and organizes all the information of the user’s credit history and provides the same to the banks and financial institutions. The information is collected through banks and financial institutions. CIBIL, then processes the information on a monthly basis and prepares a detailed credit information report (CIR) of the user’s credit history.

The CIR is then taken into account by banks and financial institutions to determine whether to approve the borrower’s home loan application or not and also at what interest rate. A good credit score and CIR report help a borrower achieve the desired loan amount timely.

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?

Improve your credit score for a home loan by following the given guidelines responsibly-

  • Check credit report twice a year
  • Raise a dispute in case there is any error/issue in the credit report. Resolve the comments at the earliest
  • Resist making multiple hard inquiries
  • Do not leave any outstanding balances
  • Set reminders for loan EMIs and credit card payment due dates
  • Do not apply for a new loan immediately after the rejection of your previous loan application
  • Always pay credit dues on time
  • Keep the repayment history clean, disciplined and strict
  • Limit the credit utilization ratio to 30%
  • Submit the cheque a few days prior to the due date
  • Most importantly, be patient, give some time to enhance your credit report

Can I get a Home Loan with a Bad Credit Score?

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

The reason behind this is that credit score dictates the process of home loan application because it is one of the most important factors taken into consideration by banks, lenders and financial institutions. A person’s bad credit score reflects his/her behaviour towards loan or credit repayment.

What are the Documents Required for Home Loan Eligibility?

Home loan applicants are required to submit the following documents to support their home loan eligibility. The documents might vary from lender to lender, however, they are the standard documents to verify the home loan eligibility-

  • CIR and credit score
  • Self-attested KYC documents
  • Bank statements
  • Salary slip of last 3 months
  • IT returns of last 4 years
  • Property papers

Applying for a Home Loan- keep 5 things in mind

Before applying for a home loan, make sure to keep the following things in mind-

  • Keep a look at your credit score
  • Do not apply for a home loan repeatedly
  • Ensure to maintain a balance between secure and unsecured loans
  • Compare a few banks on the basis of home loan interest rates, advantages, EMI options and more
  • Resist applying for a home loan from different lenders at the same time
FAQs
What is a good credit score for a home loan?
750 or more is a good credit score for a home loan.
Is it possible to get a home loan with a 700 credit score?
Credit score lower than 750 makes the process of a home loan a little challenging and costly (in terms of interest rates). Hence, it is good to first improve the credit score before applying for a home loan.
Can I apply for a home loan with a 500 credit score?
Lenders, banks and financial institutions often consider credit scores more than 750 ideal to provide home loans. A 500 credit score falls under the category of poor credit score. Therefore, it is wise to improve the credit score before applying for a home loan.
Why does credit score matter during the home loan process?
Credit score is one of the most important factors that define the creditworthiness of the user and hence, it is always taken into consideration by banks, financial institutions and lenders. A good score strengthens the possibility of acquiring a home loan whereas a bad credit score makes the home loan process extremely difficult and sometimes impossible.
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