Money lending institutions across India rely on credit scores to assess their risk of loaning money to borrowers. A credit score even helps these institutions to decide the terms of the loan apart from approving the loan. There are various types of loans that financial institutions provide, and they can either be secured or unsecured in nature. For example, when you apply for a housing loan, it is a type of secured loan where you pledge the property in return for the loan. Hence, the lenders would give money after determining the property’s value and checking your credit standing with the credit bureaus. However, since this type of loan is secured, the lending institutions may even give the loan if the CIBIL score is low.
What is CIBIL or Credit Score?
The full form of CIBIL is Credit Information Bureau (India) Limited, which determines every individual’s credit score, starting from 300 to 900 points. The credit bureau looks into your past, and how you handle the repayment of any credit you take from financial institutions in the form of a loan or credit card. Based on this repayment activity’s history, they generate a credit score for you. For example, to get a home loan, you must have a credit score of 650 to 750, depending on the lending institute.
Tips on How to Get Home Loan with a Low CIBIL Score
A few tips you may consider to qualify for a loan to buy or build a house even with a low CIBIL score:
1) Try Applying with NBFCs or HFCs:
Rather than applying from traditional banks, try applying for a loan from Non-Banking Financial Companies (NBFC) or Housing Finance Companies. The credit score requirement of NBFCs or HFCs is lower than banks and may provide the loan even if you have 550 or 600 points. However, the interest rates of such financial institutions are higher than banks. Therefore, even the loan amounts may be lower, and they may have some further requirements for you to fulfil. But, the important aspect is that you will get the housing loan you are looking for from them.
2) Offer to Pay Higher Down Payment:
Before opting for this, check with the lending institute you are approaching about their absolute minimum credit score requirement. Also, enquire how much down payment can make a difference and do they consider this option. Most lending institutes require you to make the usual down payment of about 20%. If you can make the down payment amount higher, give them the offer so that the lender can consider it when you have a lower credit score. This offer will instil confidence in the lender and show that you can repay the loan.
3) Have a Co-Applicant with Good Credit Score:
Apply for the loan with your spouse or a family member with a good CIBIL score as a co-applicant. This way, your chances of getting a house loan increase because of the joint applicant’s good credit history and probably get a lower interest rate offer from the lending institute. Your incomes increase together, making your repayment capacity stronger, and allowing the lender to give the loan with more confidence. However, for the lending institution to consider this point, your credit history should not be too low as that could adversely affect you.
4) Applying with Your Existing Lending Institution Helps:
Having an existing long-term relationship with a financial institute helps you get a loan with a little more ease. In this case, the lending institution already has your records of loan repayment history with them, due to which they may be willing to provide the loan even if you have a lower credit score. Another aspect they would consider is that all your other accounts are with them, like a savings account, recurring deposits, mutual fund investments or fixed deposits. This consideration gives them the confidence to provide you with the best home loan terms. In addition, the documentation process gets easier as the lenders have all your details.
5) Job Stability Gives Confidence to Lenders:
Financial institutions look at many other factors, even if your credit score is low, especially your employment information. Having a steady job for more years with a reputed international company is a big plus for lenders to consider while approving a loan. It shows them that you are a stable and responsible person and may consider this fact above the low CIBIL scores.
6) Don’t Apply for Multiple Loans in a Short Interval:
If you apply for many loans within a short period, it will affect your score adversely. Moreover, when you apply for an instant home loan with multiple financial institutes, every institute does a credit history check with the bureaus, and they ask for a credit report. This type of enquiry with the credit bureaus is a hard enquiry; and it reduces your credit score by approximately 10 points. As you already have a low credit score, a reduction in the score will be detrimental for you; and you should avoid multiple loan enquiries in a short interval.
7) Take Steps to Increase The Credit Score:
Last but not least, is that you should take steps to improve your credit score. Before applying for a loan, and some points for consideration are as follows:
- Pay your credit cards on time.
- Before applying for a loan, clear your existing loans to increase your score.
- To improve your credit score; Take a small secured loan like a personal loan against an FD and pay it back regularly.
Applying for a housing loan is essential when you want to construct or purchase the house of your dreams. It helps you meet the significant financial needs of home construction or purchase. However, to qualify for such a loan from any financial institute; You will have to meet specific requirements that they have. Out of the many factors lenders look for, your CIBIL score is the most significant consideration. But, there are also additional ways of increasing your chances of loan approval even if the CIBIL score is low.