CIBIL Score and its impact on home loan

Did you have problem in getting home loan approved? Chances are your CIBIL score is not well maintained.

The CIBIL TransUnion Score is a 3 digit numeric summary of your credit history which indicates your financial & credit health. The higher your score, the higher are the chances of your loan application getting approved! The score plays a critical role in the loan approval process.  It’s a record of your credit history. i.e past loans or credit cards availed from various loan providers who are members of CIBIL.

How does CIBIL get hold of your personal financial details:  

CIBIL Mechanism - This is how CIBIL functions
CIBIL Mechanism – This is how CIBIL functions

CIBIL collect and maintain records of individuals’ and non-individuals’ (commercial entities) payments pertaining to loans and credit cards. These records are submitted to them by banks and other lenders on a monthly basis; using this information a Credit Information Report (CIR) and Credit Score is developed, enabling lenders to evaluate and approve loan applications. A Credit Bureau is licensed by the RBI and governed by the Credit Information Companies (Regulation) Act of 2005.






Why is it important to a home buyer?

First thing first, CIBIL score plays a major role in deciding the home loan limit. You avail maximum home loan, you CIBIL Score should be over and above 750.

The CIBIL TransUnion Score plays a critical role in the loan application process. After an applicant fills out the application form and hands it over to the lender, the lender first checks the credit score and credit report of the applicant. If the credit score is low, the lender may not even consider the application further and reject it at that point. If the credit score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy. The credit score works as a first impression for the lender, the higher the score, the better are your chances of the loan being reviewed and approved. The decision to lend is solely dependent on the lender and CIBIL does not in any manner decide if the loan should be sanctioned or not.

About 80 per cent of all approved retail loans for individuals are based on the credit score given by CIBIL, which is seen as sign of creditworthiness of a loan applicant, based on his financial track record for the previous 36 months.

CIBIL has access to data on 400 million bank customers, which it uses to generate scores ranging from 300 to 900. Loans are generally sanctioned for applicants with scores greater than 750.

What affects my CIBIL Score?

There are 4 major factors that affect your score

  1. Payment history: Making late payments or defaulting your EMIs or dues (recently or consistently) shows you are having trouble to pay your existing credit obligations and will negatively affect your score.
  2. High utilization of Credit Limit: While increased spending on your credit card will not necessarily affect your score in a negative manner, an increase in the current balance of your credit card indicates an increased repayment burden and may negatively affect your score.
  3. Higher percentage of credit cards or personal loans (also known as unsecured loan): Having a balanced mix between the secured loans (such as Auto, Home loan) and unsecured loan (such as Personal loan, Credit Card) is likely to have a more positive affect on your score.
  4. Many new accounts opened recently: If you have recently been sanctioned multiple loans and credit cards, then lenders will view your application with caution because this behavior indicates your debt burden has increased increase, which will negatively impact your score.

How can I improve my CIBIL Score?

You can improve your Credit Score by maintaining a good credit history. This will be viewed favorably by lenders and it can be done with 6 simple rules :

  1. Always pay your dues on time: Late payments are viewed negatively by lenders.
  2. Keep your balances low: Always prudent to not use too much credit, control your utilization.
  3. Maintain a healthy mix of credit:It is better to have a healthy mix of secured (such as home loan, auto loan) and unsecured loans (such as personal loan, credit cards). Too many unsecured loans may be viewed negatively.
  4. Apply for new credit in moderation: You don’t want to seem Credit Hungry; apply for new credit cautiously.
  5. Monitor your co-signed, guaranteed and joint accounts monthly: In co-signed, guaranteed or jointly held accounts, you are held equally liable for missed payments. Your joint holder’s (or the guaranteed individual) negligence could affect your ability to access credit when you need it
  6. Review your credit history frequently throughout the year: Purchase your CIR from time to time to avoid unpleasant surprises in the form of a rejected loan application

Is it possible to avail home loan without CIBIL or poor CIBIL Score? 

  1. Home Loan from Cooperative Banks
  2. Home Loan from Friends and Family Members
  3. Loan against Existing Assets
  4. Private Lenders
  5. Guarantor for Borderline cases

Why should you check your CIBIL Score: One day I received an email from a gentleman saying that your home loan is attached to my CIBIL, could you please get this corrected? When I checked my CIBIL score statement, I was surprised to know that my Home Loan was not even attached to my credit history. I had no way to cross check for the personal who contacted me. However, requested my lenders to get this fixed and it was accepted.

The Logical Buyer suggest that home loan seeker must maintain a healthy CIBIL Score and verify it every few years to avoid any data issue. CIBIL norms indicate that correction of discrepancies will take at least 35 to 45 days. But in reality it could take longer, particularly if a bank does not respond to CIBIL immediately.

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