The credit report is one of the most crucial parameters that lenders check when they evaluate the merit of a loan application.
What is the Credit Score?
The credit score is an accurate indicator of your financial stability. It is a three-digit number issued by credit bureaus like CIBIL, HighMark, Equifax, or Experian. However, Indian lenders mostly check the CIBIL score, as TransUnion CIBIL is one of the oldest credit bureaus in India.
Your credit score depends on the numbers and types of loans you have, your current unpaid debt, credit utilisation, repayment behaviour, and the duration of your credit profile.
In a CIBIL score, 300 is the lowest point, and 900 is the highest point. And, any score above 750 is regarded as a healthy credit score.
So, why do financial institutions prefer borrowers with a credit score of 750 and above? Check out the reasons.
Reasons Why Your Credit Score Should Be Above 750
Financial institutions in India offer special home loan interest rates to borrowers with a high credit score. Moreover, a high credit score also ensures that your loan application gets processed faster. While a home loan EMI calculator is an excellent way to calculate your EMIs, finding the interest rate requires an understanding of the credit score.
Here are the reasons why financial institutions love to get the home loan application from a borrower whose credit score is above 750.
Proves the Reliability of the Borrower
Indian laws make it mandatory for lenders to inform any changes related to a borrower’s home loan or credit account to all credit bureaus operating in the country. A credit bureau like CIBIL uses advanced statistical analysis methods to calculate the credit score. They factor in a broad range of data to arrive at the score.
Hence, a 750+ credit score and the corresponding report indicates to the lender that your financial profile is reliable, robust, and risk-free. The reliability factor prompts your lender to offer benefits like low home loan interest rates, a higher loan term, and occasionally, discounts.
Speeds Up the Process of Loan Disbursal
When you do not have a healthy credit report, getting a home loan can become difficult. In the best case, when you still manage a loan, you can expect the interest rate to be much higher than the prevailing interest rates in the market.
If someone does not have a 750+ credit score, the financial institution needs to verify the credibility of the borrower physically. They need to skim and scan multiple documents to ensure that the loan does not become bad debt. And, all of these can increase the home loan processing time and decrease the probability of loan approval.
Hence, a 750+ mark on your credit report assures the lender that the home loan is risk-free, and they process the loan faster. Thus, a high credit score can give you the much-needed funds earlier and more power to negotiate with the lender.
The Chances of NPA Reduce
Till recently, banks were struggling with spiraling NPAs. However, a timely intervention by the government and the RBI has prompted financial institutions to take steps that aim to reduce bad debt. Hence, financial institutions have become more cautious than they were in the past.
A credit score of 750 and above suggests that you take the necessary steps to improve your credit profile. Hence, lenders believe that approving your home loan will not pose any danger to them. Since a credit bureau runs several checks, its results are almost always accurate.
Which Factors Can Lead to a Credit Score Below 750?
Getting a home loan with the lowest interest rates is a dream of all borrowers. However, without a 750+ credit score, it can seldom become a reality.
Here are the reasons why the credit score of a borrower drops below the magical figure.
Poor Payment History
At times, you may forget to pay your current loan dues on time. While your lender provides you with a grace period to repay the overdue EMIs, they do so at the cost of your credit score. Hence, every time a borrower delays in making payments, their credit score comes down. The problem compounds when there is a default.
Multiple Loans
If you have taken multiple loans or use more than one credit card, then your credit score may take a hit. Lenders believe that a borrower with multiple forms of credit cannot manage their finances well. Hence, when you have multiple loans, a home loan EMI calculator may show you a lesser loan amount.
Conclusion
The 750-mark on your credit report can be a game-changer. You can get lower home loan interest rates, longer-term, and other benefits. With home loan interest rates hovering around multi-year lows, now can be the best time to increase your credit score and fulfil your housing dreams.
