How To Get A Home Loan With A Low CIBIL Score

CIBIL is a score of creditworthiness calculated and provided by the Credit Information Bureau (India) Limited (CIBIL), one of the more popular credit information companies licensed by the Reserve Bank of India. Usually referred to as the debt report card of a person, a CIBIL score closer to 900 is deemed to be “healthy” whereas one closer to 300 is deemed “weak”.

Buying a house is a strategic, financial, and emotional decision for most individuals. However, funding such a colossal investment entirely through savings and investments is a difficult task, and so availing a home loan becomes necessary for people looking to purchase a house. Whether a bank or financial institution approves the housing loan is significantly dependent on your creditworthiness, reflected by the CIBIL score. 

If you have an average CIBIL score, here are top nine tips to assist you in getting a home loan sanctioned: 

1. Understand the process 

Your credit score is not the same thing as your credit report. While the two are related, they’re not interchangeable. The credit score is based on several factors that determine your ability to repay loans, whereas the credit report is a record of all of the credit lines availed and repayment history of whether the loans were paid in full and on time.

Credit scores range from 300 to 900, wherein anything above 750 is considered ‘very good’.  A score above 650 is usually deemed good enough to get financing from most lenders, but each lender might have their own eligibility criteria. Several websites and applications, either free of cost or for a nominal charge, offer potential borrowers the option of checking their credit score. 

2. Include a co-applicant

In case your credit score and income records are not ideal, you can apply for the loan with someone by adding a co-applicant to the loan application. A co-applicant with a better credit score than yours and a stable income source, can not only increase the probability of acceptance of your application but can also ensure a lower rate of interest as the lender is assured of your creditworthiness and repayment ability. 

Applicants can include parents or spouses as a co-applicant. However, for this, the details and financial documents of the co-applicant also need to be submitted to proceed with the application process. 

3. Get a secured loan to boost your score

A secured personal loan is an excellent option if you need to improve your credit score to qualify for a mortgage. A secured loan is one where you put up collateral—like an asset or property—as security against the loan. Secured loans are usually cheaper than unsecured personal loans and also easier to get. Having and repaying a secured loan assures lenders of your repayment capability due to the presence of collateral, and also creates a credit history of timely repayments. 

Apply for loans with multiple financial institutions, but not too many loans in quick succession

If a lender rejects the loan application due to a low score, there is always a chance to approach another financial institution to enquire about the same home loan. However, it is worth noting that applying for several loans in quick succession can adversely impact the CIBIL score. 

“Credit hungry” behaviour is something that lenders tend to avoid as excess debt can hamper one’s ability to make timely and required repayments. As per a general rule, one should only apply for a new loan application after a gap of six months. Enquiring with different banks or financial institutions is recommended, however it is not advisable to create many applications with different banks in quick succession. 

4. Maintain your credit card payments

You may be able to better your credit score by paying at least the minimum payment on your credit cards before the due date. The attempt should be to make the complete payment every month as credit card debt can get expensive in the long run. If not, you should at least try to pay more than the minimum amount so that you can reduce your debt faster. 

Paying off more debt will also help reduce interest charges over time and lower monthly payments for all of your loans. Credit card transactions are critical in maintaining a high CIBIL score, and one must try to keep the usage ratio up to 30% of the card limit to ensure a good CIBIL score. 

5. Apply for a loan with an existing lender

Since your lender has comfort in your repayment ability, and has done an initial credit assessment basis your cash inflows, purchases, savings, and other bank details, it is often advised to apply for the loan with the existing lender. This reduces the total turnaround time for assessment of documents. It also gives borrowers the chance to benefit from a long-term relationship with the financial institution, as lenders too prefer giving loans to existing customers based on their credit and repayment history, which can be easily accessed. 

6. Propose a Higher Down Payment

If you are looking to purchase a property worth INR 10 lakhs and can put down a high down payment of INR 4 lakh, the bank or financial institution trusts your ability to repay the loan and the overall chance of the loan application being approved increases. You must decide the source from which the down payment is made, preferably savings, as it could help compensate for a low CIBIL score.  

7. Review your credit score

You can get your dream home even with a low CIBIL score, if you have the right approach. One of the means to increase your chances of a loan application is to review your credit score and understand the reasons for the lower score. 

Potential borrowers should get their credit reports and check for errors, as a few mistakes can make all the difference between rejection and approval. Ensure that the information on your report is correct before applying for loans.

8. Give it time

The good news about getting a mortgage loan is that because it is a long-term loan, most lenders will approve the application if you meet their basic criteria such as having a regular source of income. So, if you’re worried about being denied a loan because of an imperfect credit history, you don’t need to be. Just keep working towards improving your credit score over time and try again later when the credit report looks better.

9. Know there are always exceptions

You can get a home loan with a low credit score as well. A score of more than 750 is considered ‘very good’ for taking a home loan, but this number is not a thumb rule and loan sanctions can also be based on lender-specific, internal metrics. Hence, the critical aspect is that you must keep looking for alternatives from different financial institutions that offer home loans at a different rate of interest and conditions to borrowers with a low credit score, and then choose which is best suited to you.

Having enough cash on hand, or the ability to quickly pay down your debt also helps as it shows  lenders that they won’t be stuck with non-payments if things don’t work out during the tenure of the loan. 

Your credit score has a huge impact on your financial situation. It is critical to assess whether a lender will extend credit to you. Housing finance companies, for example, give credit even to borrowers with lower credit scores as it is their area of expertise and they have better research and credit assessment capabilities. Lending institutions generally charge higher interest rates on loans to borrowers with a lower score as to compensate for the higher risk element in the loan. 

Borrowers with a poor credit score may also request a reduced repayment period or a co-applicant. When the applicants’ total income and credit score is good enough, it assures the financial institution about the ability of the borrower to repay the principal and interest amount of the loan. 

Bottom Line

You must understand that a financial institution assumes a significant amount of risk by offering a home loan as there are chances of default. To adjudge the repayment capabilities and creditworthiness of the applicant, the computation of CIBIL score is a popular credit assessment and underwriting tool. However, a low CIBIL score is not the end of the world for an applicant. 

Your credit score is a single figure that has the potential to cost or save you a lot of money throughout your life. You can get lower interest rates if you have a good credit score, which means you will pay less for whatever credit facility you take up.