What is CIBIL Score and How is it Impacted by a Missed EMI?

Home Loans are big-ticket loans that run for years. The tenor for Home Loans can go up to 40 years. Therefore, lenders are especially careful about who they lend their money to. All lenders have strict eligibility requirements regarding Home Loans. Anyone who does not meet the eligibility criteria is rejected by lenders. The Home Loan eligibility requirements take into account several different factors, such as the borrower's age, income and employment status, debt situation, the number of working years they have ahead of them, credit score, etc. A borrower's credit score is crucial in determining Home Loan eligibility.

In this article, we unravel the concept of CIBIL score and answer what is the ideal CIBIL score for Home Loans. We also look at the impact of EMI default on CIBIL Score.  

What is CIBIL Score?

When a borrower applies for a housing loan, lenders approach a credit information bureau to enquire about the borrower's credit score. The credit score is a three-digit number between 300 and 900 that reflects a borrower's ability to repay loan on time. The credit score is assigned considering several factors, such as the borrower's repayment history, how they use their credit cards, the number of loans they have applied for, their current debt situation, the type of credit mix they have, etc.

Lenders consider anything above 750 a good CIBIL score for Home Loans. Such a credit score indicates a borrower who is quite unlikely to default on loan repayment. Therefore, lenders immediately approve loan applications from such borrowers.  

On the other hand, a low CIBIL score is the mark of a borrower who has missed EMI payments in the past or has defaulted on loan and is highly dependent on loan. Lending money to such borrowers is risky and therefore, lenders do not sanction loans to borrowers with a low CIBIL score. 

If your CIBIL score is between 700 and 750, your lender may agree to sanction you a Home Loan. However, they will charge you a higher rate of interest on it. If your credit score is below 650, it will be very difficult for you to get approved for a loan.

CIBIL Score Range Table:

Also Read: How Does CIBIL Score Affect Your Home Loan Application? 

Borrowers who have a good CIBIL score not only get approved for a loan quickly but also have higher negotiating power over lenders. Thus, borrowers with the ideal CIBIL score for Home Loan, often end up getting a long loan tenor and more comfortable EMIs.   

What is the Impact of EMI Default on CIBIL Score? 

The credit repayment history of a borrower is very important when it comes to their CIBIL score. Borrowers who miss EMI payments automatically have a low CIBIL score. This is because a borrower's credit history makes up almost 35% of a borrower's CIBIL score.  

So, what happens when you default on a loan? What is the impact of EMI Default on CIBIL Score? 

Sometimes, we miss deadlines and due dates simply because it is hard for us to remember them. If you miss an EMI payment by mistake, do not worry. Simply clear the payment as soon as you can. If you clear the missed EMI before the next due date, your CIBIL score will not be impacted much. When borrowers don't pay their EMIs for more than 90 days or 3 months straight, the loan account is deemed NPA or non-performing asset. When a borrower does not clear their loan EMIs for more than 3 months, their CIBIL score takes a severe hit. In this case, their CIBIL score can go down by almost 100 points. In this case, a borrower may be able to redeem their CIBIL score by practising strict financial discipline for a few months straight. However, if a borrower defaults on loan payment completely, their CIBIL score not only goes down by a few hundred points, but their CIBIL report shows them to be a loan defaulter. If your CIBIL report says you have defaulted on loan repayment, no lender will hesitate to give you a loan.

Thus, borrowers must borrow money very cautiously and make sure they are borrowing what they will be able to easily repay since loan default is a serious issue that ruins one's chances of having access to credit and has legal implications. So, one should never make the mistake of defaulting on loan repayment. 

Also Read: How to Pick the Best Home Loan Tenor that Suits Your Budget