Buying home is one of the biggest investments that anyone makes in their life. Since not everyone has a huge amount to pay for a home, therefore, people take home loans. Anyone who is planning to apply for a home loan must have come to know that their CIBIL score plays an important role in getting approval on their loan application. With RBI mandating for all banks to share their customers’ credit information with CIBIL, getting home loan approval has become even more difficult. On the basis of CIBIL report, lenders will give disciplined borrowers favourable loan terms whereas the delinquent will have to struggle to get loan approval. If your CIBIL score is coming between you and your dream home, read further to learn how you can overcome a low CIBIL score and buy the home of your dreams. However, before that, understand about CIBIL score and factors that lenders consider before approving home loan application.
CIBIL is an abbreviation for Credit Information Bureau (India) Limited. It collects and maintains credit information of individuals to calculate their credit score and generate credit report. CIBIL has credit information of only those people whose credit information is submitted to them by banks, credit card companies and other financial institutions.
CIBIL score is a three-digit number that reflects your credit worthiness. This number is calculated and assigned to individuals by CIBIL on the basis of their credit payment history. When you apply for a loan, the lenders fetch your credit information from credit bureaus such as CIBIL to assess your loan repayment capability and past behaviour regarding finances. Higher the CIBIL score, easier it will be for you to get your loan or credit card sanctioned.
Factors that determine your CIBIL score are listed as follows:
• Loan Repayment History
Lenders give loans to those whom they trust will repay the loan amount on time. This they assess by looking at the loan applicant’s credit report and credit score. Your credit report shows them your loan repayment history, which means how consistent and punctual you’ve been in paying your loan instalments and credit card bills.
• Credit Balance
Your credit balance is yet another factor that is considered by the lenders before approving a loan application. Your credit balance shows how much you owe to other lenders. How much of the total credit available on your credit card has been used and how often it is used. Lesser your credit balance, better will be your chances of getting loan approved.
• Length of Credit History
Lenders consider the length of your credit history seriously as it says a lot about how you have been treating your loan amount. Long credit history helps in getting loan sanctioned if it is not tainted by careless behaviour such as late payments and other negative terms. A short credit history is also good unless marked by late payments.
• New Credit
Lenders also look at how many new credit accounts you have or have applied for recently. They also see the last time you opened a new account. If you have opened too many credit accounts in a short period, this alerts lenders that you’re most probably financially unstable.
If your CIBIL score is below 750 (out of 900), you are more at the risk of getting your home loan application rejected. If you still have time to improve your credit score, you can follow the following tips to ensure your CIBIL score does not stand in the way of buying the home your dreams.
• Pay your credit card bills and loan instalments in full and on time.
• Avoid using credit card as much as possible.
• Ensure you do not use more than 30 to 40 percent of your credit limit.
• Avoid applying for too many credit cards.
• Don’t apply for loans at once or in short intervals.
• Check your credit report periodically to look for mistakes if any.
If you follow the given tips consistently, you will surely see improvement in your credit score. It will take some time but the results will eventually show.
Absolutely not! One should never give up as there is always a solution for every problem provided your credit score is not at the worst stage. If there is no time for you to improve your credit score, there are a few other alternatives that you may choose to get home loan.
• Rope in Your Spouse
People who are married can rope in their spouses to get home loan. If your spouse is earning and happens to have a good credit score, then you can apply for a joint loan. Applying for a joint loan will improve your chances of getting home loan sanctioned as your incomes will be combined. However, remember that any late payment will affect not only your credit score but your spouse’s as well.
• Consider Applying for NBFC Loan
NBFCs or Non-Banking Financial Companies are financial companies that give provide certain type of banking services such as loans and credit facilities, but do not hold a banking license. NBFCs may provide you loan despite your low CIBIL score, however, they may lend you money at quite high interest rates.
• Opt for Peer to Peer Lending
Peer to peer (P2P) lending is another option that you may consider if your low CIBIL score is making it tough to get a home loan from a lender. It is a method of debt financing that does not involves middleman in the process. P2P lenders usually lend those people money that may not have otherwise gotten from standard financial institutions. When you apply for P2P loans, the loan amount may be offered at a high rate of interest.
• Ask Your Family and Relatives
If everything seems to fail, then you may consider taking help from your friends, family and relatives. If you truly need home loan, you may consider borrowing from your family, friends or relatives. If anyone agrees to help you, set a rate of interest and the tenure of the loan payment and ensure to get the terms you may have discussed legalised to make it transparent and safe for them as well as for you.
Credit score is not the only factor that affects your chances of getting home loan approved. To ensure that nothing stands between you and your dream house, it is important to know a few factors that banks consider to approve your home loan application. Some of these factors, excluding credit score are mentioned as follows:
For banks, lending money to people in the age group of 30-50 years is safer than to lend money to people above 50 years of age. This is because, people of age 50 or above will retire in a short time and will not have stable income for loan repayment. Whereas the other age group still has a decent number of working years to repay the loan amount.
Banks prefer lending money to people with stable jobs. For instance, for most lenders, lending money to government employees is safer than lending money to self-employed or people working in private companies. This is because, government jobs are considered stable.
• Current Organization
The reputation of your organization also plays an important role to get you a home loan. People working in companies with a reputation of not paying timely salary to their employees may not get loan approval. Whereas, people working in MNCs and other established firms have more chances to get quick home loan approval.
• Work Experience
A borrower switching jobs frequently is not seen as a reliable person due to unstable employment behaviour. Banks usually include working experience as part of the eligibility criteria. Ensure that your working experience qualifies as per the norms mentioned in the loan’s eligibility criteria.
• Repayment Period
The loan repayment period is another factor that can help you get home loan approval. Lenders prefer those borrowers who can repay loan amount in a short period to people who opt for longer loan repayment period. If possible, choose home loan tenure as short as possible.
In addition of the factors listed above, ensure that you fill the home loan application form carefully and submit all the required documents. Ensure that whatever information you choose to reveal is true and your documents are correct.