If you are planning to take a Home Loan, it is extremely necessary to have a good credit score. A credit score is a score given to you by the banks to evaluate your creditworthiness and your repayment ability. It has been made mandatory by the Reserve Bank of India to check your credit score, i.e. your CIBIL score.
- What is CIBIL score?
Credit Information Bureau of India Limited (CIBIL) is calculated by Credit Information Company which is also a premier source of credit scoring for individuals and commercial entities in India. A CIBIL score ranges from 300-900. The higher your credit score, the better is your creditworthiness. A higher CIBIL score can also mean faster approvals and in some cases lower rates of interests. Your CIBIL score is updated on a monthly basis and if you happen to default on your Home Loan repayment it results in a negative score.
A CIBIL score is required even when you do not want a loan at the moment. You never know when you might need a loan and having a good CIBIL score will only lead to faster loan approvals. It takes at least 12-18 months to build a good credit score.
The CIBIL score is calculated on the basis of the financial discipline maintained by an individual in terms of timely repayment of all their dues. If you default on your repayment, for any reason, it results in a negative impact on your credit score. If you have a genuine reason for your default like a medical emergency, you can always discuss with your bank. It is necessary to maintain a good credit score in order to avail the benefits.
Here are ways in which you can build and maintain your CIBIL score:
- Apply for new cards if you don’t have any.
- Use only up to 20% of your credit card exposure limit.
- Keep the credit card expenses consistent.
- Credit score and Home Loan interest rates:
A lot of public-sector banks have linked credit scores to interest rates and other private and public sector banks are expected to follow suit. Customers whose credit score is above 760 points will be charged a Home Loan interest rate of 8.35% whereas customers having a credit score between 725 and 759 points will be charged and interest rate of 8.85% and customers who have a credit score less than 724 will be charged an interest rate of 9.35%. In the case of first-time customers who have no credit history, the bank charges then an interest rate of 8.85%. These rates charged by the bank are irrespective of the tenure and loan amount.