How is my CIBIL score used for home loans

How is my CIBIL score used for home loans

Before processing your home loan application, a bank will obtain your credit score and repayment history from CIBIL.

CIBIL collects and organizes all your data and provides the same to all banks and financial institutions when required. It gets hold of this information with the help of banks and credit institutions which are members of CIBIL by default. Information is provided to CIBIL on a monthly basis based on which CIBIL prepares a credit information report (CIR) and credit score for each individual and commercial organization. Banks refer an applicant’s history to determine whether a home loan should be approved or not. Credit scores help banks disburse loans more efficiently by avoiding taking on risky customers thereby reducing defaults.

NPAs or Non-Performing Assets form a portion of many lenders portfolios. With home loans accounting for a large part of a bank’s loan book, an applicant’s creditworthiness becomes an important factor in maintaining quality assets.

Steps to follow when applying for a Home Loan

Here are a few important steps to leverage credit scores to your advantage when availing a housing loan.

Check your CIBIL score before applying

Know your credit score before applying for a home loan so as to ensure that your credit history and personal details are in order to avoid rejection from bank. You can purchase your credit report yourself, online at the CIBIL site, by paying a nominal amount of Rs.470.

Stop applying repeatedly:

If your credit score is lower than required and your home loan application is rejected by a particular bank, stop applying repeatedly at other banks. This will further reduce your credit score as different banks making enquiries on one person’s credit rating is viewed negatively.

Limit your unsecured loans:

Try to close or limit you unsecured loans such as personals loans and credit cards with high credit limits. This is because they are indicators of outstanding debt. Banks consider your debt to income (DTI) ratio before sanctioning a home loan. A higher debt to income ratio indicates that you are overburdened and will not be able to bear additional EMI payments.