How to Determine Your Ideal Credit Score for a Home Loan?

When it comes to Home Loans, your credit score plays a crucial role in determining your eligibility and interest rates. A good credit score can mean the difference between loan approval and loan denial, as well as the amount of interest you'll pay over the life of your loan. In this article, we will look at how you can calculate the ideal credit score for a Home Loan. If you want to figure out whether you have the Ideal credit score for a Home Loan, scroll down and read more.

What is the Ideal Credit Score for a Home Loan?

A credit score is a three-digit value between the range of 300 and 900 where your credit score will usually fall somewhere between them (but never exactly on them). Your score depends on various factors such as your payment history, the total amount of debt you owe, and the length of your credit history among others. The closer you are to the credit score of 900, the better the chances of getting your Home Loan approved. Ideally, your credit score should be above 750.  

There are a variety of scoring models, some of which incorporate outside information when determining credit ratings. Potential creditors and lenders, including banks and credit card providers use credit scores (among other things) when determining whether to grant you credit in the form of a loan or credit card. It's one of the several variables they use when figuring out whether or not you'll be able to repay their loan.

What Credit Score do Lenders Prefer?

To a large extent, lenders prefer the customer’s credit score to be 750 and above. However, the actual figure varies from lender to lender. Higher credit scores mean you have demonstrated responsible credit behaviour in the past, a higher CIBIL score will provide you with swift loan approval, but it’s not the only thing you need, a lot depends upon the lender’s terms and conditions and their eligibility criteria. Borrowers who meet the requirements get attractive offers like lower interest rates and longer repayment periods. Individuals with credit scores less than 650 will typically have a harder time getting approved for better loan terms.

It is worth noting that since all creditors and lenders may not report to all four of the major credit agencies, credit scores may vary between them. You might have a debt with a creditor who only reports to one, two, or none of the three, but many creditors do so. Also, there are numerous scoring models accessible, and they may vary based on the type of loan and the preferences of the lenders for particular criteria. This leads to us to the next question.

Is Credit Score Important for Home Loan?

Your credit score is likely the first thing the credit issuer looks at when you apply for credit. You follow the same procedure whether you're applying for a credit card, loan, or mortgage. Credit reports and credit scores are indicators that let a lender determine your dependability for making on-time debt payments. You will not be rejected outright if you do not meet the high credit score standards, but the credit you receive will probably be a one with a higher interest rate and lower amount than someone with a better credit score.

If you have a low credit score, the chances of denial of your Home Loan becomes much higher. Every lender would want to give credit to a person with high credit score as the chances of repayment are higher. So, in order to have a pleasant Housing Loan borrowing experience it is important to maintain a good credit score.

What Does Your Credit Score Say About Your Home Loan Eligibility?

The range your credit score falls into determines your eligibility for a Home Loan. It is higher for a higher credit score and lower for a lower credit score.
 

*Note that this is not a standard representation and the values mentioned here are indicative. 

Components of Credit Score

It is critical to understand the various components of credit score in order to improve or maintain a good one. Only by identifying potential areas for improvement will you be able to devise a strategy for improving your credit score. The following are the primary credit score evaluation factors: 

• Individual credit payment history
• The individual's current debts
• Time period of credit history
• Credit mix
• frequency of applications of new credit

How do You Improve Your CIBIL Score for a Housing Loan? 

The first step to improving your CIBIL score is to obtain a copy of your credit report and review it carefully. Your credit report will provide you with a detailed record of your credit history, including your current debts, payment history, and credit utilization. So, if your credit score does not cut through the lenders, follow these steps:

• Review your credit report at least twice a year
• Always try paying your dues on time
• Rectify errors or issues (if any) in your credit report.
• Don’t make too many inquiries
• Avoid closing old credit cards and carrying too much debt
• Get a handle on bill payments.
• Set reminders for credit card payments
• Do not apply for a new loan right after the rejection of a previous loan application
• Limit requests for new credit.
• Always pay your credit card bills timely
• Maintain a clean, disciplined, and strict repayment history
• Limit your credit utilisation ratio to 30%
• Submit the cheque to banks or financial institutions a few days before the due date
• Consider consolidating your debt.
• Track your progress with credit monitoring.

Also Read: Best Credit Score for Home Loans and How to Improve Yours 

Is it Possible to Get a Home Loan if I Have a Low Credit Score? 

It is entirely possible for a person with a low credit score to get a Home Loan, but, at the cost of a higher interest rate. Lenders mostly charge applicants with low credit scores a higher rate of interest.  

A Credit Score of 700 is usually considered the lowest score at which you can still expect good deals. To determine your ideal credit score for a Home Loan, look into your lender's minimum credit score requirements and aim for a score that is well above that minimum. 

Also Read: Is a Good CIBIL Score Required to Get a Home Loan Approval 

Conclusion

To summarise, a more universally accepted view of an ideal credit score is a one above 750. Before applying for a Home Loan, you need to keep the in mind a few other things such as maintaining a healthy financial balance and comparing offers while keeping in mind loan interest rates, benefits and also EMI options; and refraining from applying for multiple Home Loans at the same time is of utmost importance.