How Can Your CIBIL Score Help in Negotiating Better Home Loan Deals?

Lenders take into account several different factors while deciding the Home Loan interest rates to be offered to a loan applicant. Factors, such as the applicant's age, employment status, the number of loans they already have, etc., play a key role in helping the lender decide the loan interest rate to be offered to the borrower. One of the most important factors that determine Home Loan interest rates is the CIBIL score. These days, a High CIBIL Score almost guarantees quick loan approval as well as beneficial loan terms and conditions, such as low-interest rates, long repayment periods and higher loan sanctions. On the contrary, a low CIBIL score makes getting approved for a loan difficult. Before we get to the details of how a High CIBIL Score can help one negotiate for better Home Loan deals, let us first understand what a credit score is and what its significance is.  

What is a Credit Score?

Millions of users around the world use credit. Credit Information Bureaus collect information on these credit users and use this information to understand a borrower's attitude towards credit. Four credit information bureaus are authorized by the Reserve Bank of India to collect information on Indian credit users and the most popular of these is TransUnion CIBIL. A credit score is a three-digit number between 300 and 900 that indicates a borrower's attitude towards credit and the likeliness of repaying a loan on time. Lenders and credit rating agencies consider anything about 750 a good or high CIBIL score. A CIBIL score range between 700 and 750 is considered decent, but anything below 750 raises red flags. The credit score that TransUnion CIBIL assigns to borrowers is known as the CIBIL score. 

Also Read: How to Increase Your CIBIL Score Above 800? 

Let us now look at how a high CIBIL score helps one get better Home Loan deals. 

Here's How a Good CIBIL Score Will Help You Avail of a Good Home Loan Deal

A borrower's CIBIL score reveals many different things about them to a lender. It gives a lender an idea of the borrower's repayment history, the dependency on their debt and how they use and handle credit, etc. A High CIBIL Score, i.e., anything between 750 and 900 is the mark of a borrower who borrows money cautiously and repays it on time. It is also the sign of a borrower who is not highly dependent on credit and therefore, it is quite unlikely that they will default on loan repayment. Lenders know there is almost no risk in lending money to such borrowers. Therefore, lenders extend their best Home Loan deals to such borrowers. Further, since lenders want borrowers with a High CIBIL Score as clients, a good CIBIL score automatically gives a borrower high negotiating power, allowing to negotiate for better loan terms. If a borrower has a High CIBIL Score, they can: 

- Ask for a lower interest rate. Low-interest rates help borrowers keep their EMIs affordable and repay the loan as quickly as possible. They also allow borrowers to reduce the cost of borrowing the loan by reducing the total interest pay-out on the loan.  

- Request the lender for a longer loan tenor. Home Loans are big-ticket loans. They easily run into lakhs, sometimes even Crores. When the Home Loan amount is big, a long repayment tenor makes repayment easier and less burdensome.  

- Negotiate for a higher loan sanction. Generally, lenders sanction up to 75% of a home's value as a loan. However, when a borrower has a High CIBIL Score, the lender wants them as a client as much as the borrower wants to get approved for the loan. Thus, with a High CIBIL Score, a borrower can request a higher loan sanction than is the norm. 

The question is what should a borrower do if they do not have a High CIBIL Score? Should they give up on their dream of becoming a homeowner?  

The answer is no. Improving your CIBIL score is easy - you will need to be patient and disciplined and pushing your CIBIL score into the excellent category may take more than a few weeks, especially if you have been reckless with credit in the past. However, improving one's CIBIL score is possible. Here are some tips that will prove helpful in this regard.  

- To start with, your repayment history is one of the key factors that affect your CIBIL score. So, if you want to improve your CIBIL score, make it a point to never miss an EMI due date or credit card bill payment date. If you are someone who finds it hard to keep track of things, then set up reminders and auto-payments but fall into the habit of cleaning all payments before the due date.  

- Never exhaust your credit cards and do not pay only the minimum amount due on your credit card since both things cause your credit utilization ratio to go up significantly and a high credit utilization ratio is the mark of an unreliable borrower and leads to a low CIBIL rating.  

- Maintain a healthy mix of both secured and unsecured loans. This is crucial to convince lenders and credit rating agencies of your ability to handle and repay all kinds of loans. A healthy credit mix boosts one's CIBIL score.  

- Never apply for too many credit cards or loans together. Too many credit card applications and loan applications lead to too many hard enquiries, which in turn, cause a borrower's CIBIL score to drop.  

- Lastly, check your CIBIL report for errors at least once every six months. Sometimes, borrowers' CIBIL Score drops down due to errors in their CIBIL report. Check your CIBIL score online at least once every six months and if you see any errors in your report, report them immediately. 

Final Words 

The significance of a CIBIL score cannot be undermined in the loan approval process. A high CIBIL score not only makes it easier for borrowers to get approved for a loan quickly, but also makes sure that the borrower is spoilt for choice and has high negotiating power. Therefore, before applying for a Home Loan or a loan of any kind, check your CIBIL score online. Apply only if your CIBIL score is at least 750 or above.   

Also Read: Tips to Maintain Your Business CIBIL Score Above 700