What is the Credit Score Requirement for Home Loans?

A home loan is a type of secured loan, where a person borrows money from a bank or a financial institution with the intention of buying or building a house. Since it is a secured loan, the lenders will require some kind of collateral against the loan (such as mortgaging the property, or holding the deed) until the loan amount has been paid back with interest.

When approving such loans, banks usually check a person's credit score in order to determine their creditworthiness, or their ability to repay the borrowed money on time.

How is Credit Score Important for Home Loans?

An individual’s credit score, also popularly known as CIBIL score, is a three-digit number between 300 and 900 that is calculated using a person’s credit history by the four licensed credit bureaus (TransUnion CIBIL, Experian, CRIF High Mark, and Equifax).

These scores are used by banks to decide whether or not to process a home loan application. Credit bureaus collect your credit history data – including payment history, existing debt, credit utilization. When you apply for a home loan, banks will obtain this data (through credit score and credit reports).

What is a Good Credit Score for a Home Loan?

While there is no universal minimum score for home loans, every bank has a cut-off point to decide whether to accept or reject applications. Generally, a credit score or CIBIL score of 750 and above is considered good for home loan approval.

This is how your credit score or CIBIL score might affect your loan approval:

Credit Score	Effect on Your Loan
750 – 900	Good scores mean a high chance of your home loan requests being approved, The approval process will be quicker, and you will be in a position to negotiate better interest rates.
600 – 749	Average scores can still get approved for a home loan. However, lenders will consider other factors like monthly income, existing loans, employment stability, etc, The approval process will take longer and you will likely not get the best interest rates
300 – 599	Low scores and poor credit history will reduce your chances of getting a loan, But those few lenders who do offer you home loans might give you lower loan amounts, high interest rates, or request collaterals, If you get rejected, you need to improve your credit score to be eligible for a loan

How to Get a Home Loan with a Low Credit Score?

You can still get a home loan even when you have a low credit score. Or even if you have no credit history (this is when your score is noted as NH/NA because you have not had any prior loans/credit cards).

Generally, you should try to improve your credit score before applying for a home loan. But, if this is not possible, you can try one of the following:

Look for another lender: Find another lender who might offer you a home loan at higher interest rates.
Get a Co-applicant/Guarantor: Apply for a loan with a co-applicant or a guarantor, like a close family member, who has a good credit score. This can improve your eligibility.
Offer collateral: Some lenders might offer you a loan against some sort of collateral, such as gold, shares, assets, fixed deposits, etc.
Prove stable income and bank balance: Having a stable income and a good bank balance can assure lenders that you can support the payment of monthly loan instalments.
Opt for a reduced loan amount: You can request a lower home loan amount, and a higher down payment that poses a lesser risk to the lender.

However, remember that loan approvals usually depend on many other factors, and these methods might not ensure approval if your credit score is low.

If your application for a loan has been rejected, try to improve your credit score before applying for a loan again. Immediately applying for loans with another lender will reduce your score further.

Can you Improve your Eligibility for Home Loans?

Having a good score can be very beneficial, and help assure that banks will extend you a loan. So, here are some ways to improve your credit score:

Keep track of your credit score to ensure that it is good enough.
Regularly check your credit report so that you can spot any mistakes and rectify any errors.
If you have any outstanding or defaulted payments, settle them as soon as you can.
Remember to pay your credit bills and EMIs on time. If you think you might forget, set up reminders or opt for auto-debit.
Avoid becoming a loan guarantor. In case the borrower defaults on payments, it will affect your credit score, and you also might end up paying the debt on their behalf.
Try not to use less than 30% of your credit limit, so that you are not seen as relying on credit.
Do not apply for many new credit cards, loans, etc., within a short period of time. This includes applying for credit cards, loans, etc.

Frequently Asked Questions

✓ What does your credit score or CIBIL score mean?

Credit score ranges are as follows:

300-579 – Poor
580-669 – Fair
670-739 – Good
740-799 – Very good
800-900 – Excellent

When you have a score above 700-750, it is considered good. But, a credit score below 650 is considered to be either fair or bad. As different credit bureaus use slightly different scoring models, your score may vary slightly based on which credit bureau creates your credit report.

✓ What is the minimum CIBIL score required for a home loan?

There is no real minimum CIBIL score for home loans since every bank and lender has their own cut-off point to decide whether to accept or reject applications. But, generally, a CIBIL score of 750 and above is considered good for home loan approval.

✓ Does your CIBIL score affect home loan approvals?

Yes, your CIBIL score can affect your home loan approval. Having a higher credit score means that you will not be a risk for a lender and your home loans will be approved. However, a lower score is more risky for the lender, and you might either be rejected or you will have to pay higher rates of interest.

✓ What should you do before applying for a home loan?

Before applying for a home loan, here are a few things to keep in mind:

Check your CIBIL score and your CIBIL report. If you find any errors in your report, rectify them as soon as you can.
Consider settling any pending payments, as a higher credit utilization may harm your score.
If you have had a recent loan application that was rejected, do not apply for new loans immediately.
If you have a low credit score, take steps to improve it before you apply for a loan.
Browse and shortlist those lenders that will offer you the most favourable deals.