What Is the Preferred Credit Score for A Home Loan Approval?

What Is the Preferred Credit Score for A Home Loan Approval?

Are you aware of the fact that your CIBIL or credit score is an essential parameter, which is looked upon when sanctioning your home loan? You must have a strong credit score to avail a home loan. If the score falls between the ranges of low to poor score, then the lender may turn down your home loan application. A strong score ranges anywhere between 750 and 900. However, a weak score is usually below 750. So, if you are looking to avail a home loan at a lower interest rate, ensure you hold a high credit score of over 750. Suppose you are looking to avail an ICICI home loan, then to get a lower interest rate and processing charge, ensure to have a higher credit score. You may even use an online ICICI home loan EMI calculator to compute the suitable EMI, and overall interest constituent acceptable to you as per your repayment potential and cash inflows. Doing so would allow you to carry on with your big-ticket investments for your long-term goals while simultaneously meeting home loan EMI as per preference. 

What is a good credit score?

Credit score also known as CIBIL score is given to businesses and individuals by the TransUnion CIBIL. This represents your credibility as an individual for availing a home loan. Financial institutions evaluate whether it is suitable to grant you a home loan approval depending on your credit profile and score. CIBIL score is nothing but a numerical figure ranging anywhere from 300 to 900 computed depending on your past repayment record and is repaid by loan applicants. So, note that the higher your credit score, the higher would be your chances as an individual of availing a home loan. Apart from your CIBIL score, the lender also ensures to factor in other important parameters for determining your eligibility as a home loan applicant. 

Also Check: ICICI Home Loan EMI Calculator

How is your credit score computed?

For computing your credit score, your whole credit past record is reviewed. This mainly involves the number of credit options availed, regularity in loan payments along with various other linked parameters. Such parameters are evaluated depending on the weightage assigned, and the applicant’s performance. 

The crucial parameters for computing the credit score are mentioned below – 

Previous performance

Previous performance has a thirty per cent weightage in the credit score. The previous repayment record of the credit card and loans of the applicant is factored in, and this is looked upon as a crucial criterion in computing the credit score. Visible patterns linked with irregularity in EMI and credit card outstanding payments lower the credit score on this aspect. Bounced or missed loan EMIs and credit card outstanding paid post the due date tends to result in lower credit score. 

It must be noted that missing out on just a single loan EMI or delaying the credit card outstanding by thirty days does not reduce the credit score significantly. So, repayments delayed once or twice in just two to three years do not considerably impact your credit score. However, repeated instances of irregular repayment involving missing out on loan EMIs for two to three months constantly or delaying the credit card due repayment by sixty to ninety days results in a considerable fall in credit score by nearly 100 points or even more in certain situations. 

Moreover, missing out on over three loan EMIs or delaying credit card outstanding by over ninety days, leads to the inclusion of recovery agents by financial institutions, which considerably lowers the score, which may take a long to get rectified. 

Kind of credit and duration

It has 25 per cent of the weightage upon the overall credit score. This factor has two major parts – firstly which represents whether the availed credit was unsecured or secured and the overall duration since the initial credit was taken up. Secured credit is the loan availed against the asset. In simple terms, lenders can sell the assets during loan default in the scenario of secured credit options like two-wheeler loans, auto loans or home loans. In the case of unsecured loans like personal loans or credit cards, no security is required to be pledged and you can use the loan proceeds for any purpose. 

It is recommended to create a balance between the unsecured and secured credit options. However, the higher the unsecured credit, the lower would be your credit score. Moreover, the availability of steady credit past record for at least two years adds up to making a strong credit score. It shows to the lender that the applicant is a credible individual worthy of availing the required loan proceeds. 

Credit Exposure 

Credit exposure infers 25 per cent weightage on the overall credit score. It is even known as the credit utilisation ratio or CUR. This is the ratio of the overall spends to the overall available credit card limit. In simple words, credit exposure shows the dependency of the individual on credit for daily transactions. While credit exposure equaling 30 per cent is looked upon as ideal, higher exposure to credit is looked upon as negative and makes your credit score fall considerably. 

Other factors

Such parameter account for the rest of the 20 per cent weightage on your credit score. These involve parameters like the number of credit cards or loans applied and current repayment trends. Application for multiple credit cards or loans within a short span regardless of those sanctioned, reduces your score, which indirectly impacts your credit score. In simple terms, placing an application repeatedly for credit options adversely impacts your credit score and profile. 

So, your credit score must range anywhere between 750 and 900 if you want to avail a loan deal of your preference. A lower score of below 750 is unacceptable as it may result in outright loan application rejection.