If you are a first-time homebuyer, you might be wondering what role your CIBIL score plays in securing a home loan. Simply put, a CIBIL score indicates your creditworthiness based on your financial history. It helps lenders assess your ability to manage and repay loans, making it a key factor in determining your eligibility and terms of a loan.
It is advisable to understand and check your CIBIL score while assessing your eligibility for a home loan.
What is a CIBIL Score?
A CIBIL score is a numerical representation of your credit health, ranging from 300 to 900. Lenders use this score to assess your repayment capacity. The higher the score, the better your chances of being approved for a home loan at favourable terms. Typically, a score of 750 or above is considered an ideal CIBIL score for a home loan.
How to Build a Strong CIBIL Score Before Applying for a Home Loan?
For first-time homebuyers, it is essential to establish and maintain a good CIBIL score. In case you do not have a credit history yet, taking these proactive steps can help you build a healthy credit profile:
1. Start with Small Credits
If you are new to credit, consider applying for a basic credit card. Make small purchases and pay them off regularly to demonstrate responsible credit management and timely payments.
2. Avoid Late Payments
Payment history is one of the key components of your CIBIL score. To avoid missing due dates, set up reminders or automate EMI payments or credit card bills.
3. Limit Credit Utilisation
Keep your credit utilisation ratio below 30%, as a high ratio may indicate over-reliance on credit and can lower your score.
4. Refrain from Multiple Loan Applications
Applying for multiple loans or credit cards within a short period results in several hard enquiries. A hard enquiry occurs when a lender or a financial institution checks your credit report to assess your creditworthiness before approving your loan or credit card application.
On the other hand, when you check your own credit score or when a lender performs a background check without you actively applying for a credit, the enquiry is registered as a soft enquiry. While soft enquiries do not affect your CIBIL score, multiple hard enquiries can lower your score.
5. Build a Healthy Credit Mix
A combination of secured loans, such as a home loan, and unsecured loans reflects well on your credit profile because it demonstrates your ability to manage different types of credit responsibly.
For first-time homebuyers, understanding the CIBIL score for a home loan is a key step in the journey of availing of a loan. It is recommended to perform a CIBIL check for loan eligibility to assess your score and maintain a healthy credit profile so that you can secure a loan at competitive terms.
