CIBIL Scores are used by banks or lenders to check the creditworthiness of loan applicants or borrowers. A CIBIL score of 750 and above is considered to be very good.

HDFC, just like any other lender, checks applicants’ scores from the Credit Information Report (CIR) developed by CIBIL. Based on the credit score they decide if the applicant should be granted a loan. If the credit score is low, the bank can still grant you loan at a higher rate of interest depending on the information available in the applicant’s credit information. The more creditworthy you are, the less a negative score affects your chances of being approved for a loan.

HDFC checks your eligibility based on your gross monthly income, loan tenure and the rate of interest and if the applicant has other EMI’s outstanding.

Let us see what a CIBIL score is and why it’s important while applying for a home loan.

What is a CIBIL score?

It is a credit score given by CIBIL to indicate a person’s creditworthiness based on past credit history. This information helps lenders to evaluate loan applications.

CIBIL or the Credit Information Bureau India Ltd. is India’s first credit information company. It is also known as the Credit Bureau. The Credit Bureau maintains records of individuals’ and companies’ credit information regarding loans and credit cards. This information is submitted to CIBIL by member banks and lenders on a monthly basis. This information is used to maintain a Credit Information Report from which a Credit Score is developed. CIBIL is licensed by the RBI and governed by Credit Information Companies (Regulation) Act of 2005.

Why is CIBIL Score important when applying for a home loan?

Every person who wants a loan sanctioned must know that the CIBIL score plays an important role in obtaining a positive approval.

When the applicant submits his form to the lender, the first thing the lender does is check the credit score and report of the applicant. If the credit score is low, the lender may even reject the loan application. If the credit score is high, the lender will look into the application and checks the applicant’s creditworthiness.

The credit score acts as the first impression of the applicant. CIBIL does not decide if the loan or credit card should be sanctioned nor can it delete any records reflection on the Credit Information Report. CIBIL is just here to help with the lenders and the applicants to take an informed decision. The CIBIL Score ranges from 300-900. It is noticed that the credit score above 750 is preferred by the loan providers.

The next obvious question is how to improve one’s credit score. The applicant can improve it by:

• Never making late payments.
• Not using too much credit.
• Having a balance between both secured and unsecured loans. (Too many unsecured loans may negatively affect the score).
• Applying for new credit with caution.
• If you have joint accounts, monitoring them closely for late payments.
• Keeping track of your credit history by buying the Credit Information Report.

How lenders make use of CIBIL Scores

Earlier, lenders had to make an internal assessment of the applicant before sanctioning the loan. Now with the availability of CIBIL scores and Credit Information Reports, lenders have easy access to information on the applicant.

• CIBIL has a large database of customers and their credit scores.
• Lower the credit score, higher the chances of loans being rejected.
• The lower limit is 300 and the higher limit is 900. Higher the credit score, better the chances of loans being considered for approval.

Things the applicant must know:

The applicant needs to keep in mind the following while applying for loan:

• If there is any incorrect information provided by CIBIL, the individual can report and submit valid proof to correct it.
• If a person has two loans and if he defaults on a few payments on one of the loans but has no default on the other one, and if that person wishes to avail another loan from a different bank, this bank will get information from CIBIL about his default payment. Thus, increasing the chances of his loan at the other bank being rejected. He may even have to pay higher interest on the second loan due to this.
• Banks check your payment history if there is any default and how much is overdue.
• They check your company profile where you work.
• They check the EMI to income ratio. That is if your monthly EMI is more than 50% of your monthly salary, the chances of getting a low is reduced.

Types of Home Loans offered by HDFC

Housing Development Finance Corporation (HDFC) as the name suggests provides housing finance as its core business. HDFC is the leading provider of Housing Finance in India. Though they have diversified to cater to different needs through the different phases of one’s life, the focus is mainly on housing. It has fulfilled 4.9 million dreams over the last 3 and half decades.

HDFC provides home loans starting at an attractive interest of 9.90% p.a.(subject to change) whereby EMIs can be as low as Rs.871 per lakh (subject to conditions).

HDFC offers the following types of home loans.

Indian Residents are offered home loans for the following purpose:

• To buy a new house or a flat and bungalow from developers.
• HDFC also lets you purchase resale homes that suit your requirements.
• To construct their own home
• To transfer outstanding home loan balances from other banks to HDFC to avail the benefit of paying low monthly instalments, customised repayment options and attractive interest rates.
• To renovate or upgrade homes, HDFC offers Home Improvement Loans.
• To extend houses, HDFC offers Home Extension Loans.
• To buy a plot of land, HDFC offers Plot Loans.
• To individuals who have set their eyes on a new house but have to wait till the old house is sold to make the payment, the HDFC bank offers Short Term Bridging loans to provide funds required to purchase the new house until the old house is sold.
• To agriculturists who wish to own a house in the rural or urban area, HDFC offers Rural Housing Finance. Salaried and self-employed persons can also avail this loan if they wish to own a space in their hometown that is in these areas.

NRI’s also can avail home loans from HDFC to own their own space in India.

So, applicants need to keep track of their CIBIL score and check how worthy they are to the lenders. Applicants, at all times, must try and keep their credit score as high as they can. They can do so by never being late in making their payments and by keeping a balance between the secured and unsecured loans. If a good CIBIL score helps applicants avail home loan from HDFC, a leading lender in India, it stands to reason that future credit will also be easy to avail from HDFC or other lenders.