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Applying for a home loan with Bad Credit Score? Here are some tips
Jun 28, 2021
What is CIBIL SCORE
Credit Information Bureau of India Limited issues CIBIL Score or Credit Score to an applicant that denotes his creditworthiness and his ability to repay the loan on time.
CIBIL is a three-digit number which is calculated on the basis of the financial history of the applicant. The CIBIL Score ranges between 300 to 900 and people having a higher score have better chances of getting loans approved. As per CIBIL’s own analysis, most of the loans approved are for those individuals who have a score of 750 or more.
Your CIBIL Score is determined on a number of factors such as your payment history, types of credit and number of loan accounts, credit history, opening and outstanding loan amount, etc. Different banks and financial institutions have different benchmarks for issuing loans to applicants.
Having said that a low CIBIL score usually is a deterrent for many lenders to give a Home Loan, there are some methods to avail a home loan, in case you have a lower score.
Raise a Credit Repair Request
You Credit Repair Request can be made on the CIBIL website, in case the score has been lowered based on irregular past repayment record due to genuine reasons such as technical errors while debiting EMI amount, non-receipt of credit card statement within sufficient time before the due date, EMI holidays/ moratorium period not considered, etc.
Clear your outstanding debt
This requires payment of all your debt accounts (mainly unsecured debt like credit cards and personal loans) in full and not through a settlement amount that would be lower than the outstanding amount. Please make sure that you take a No Objection Certificate (NOC) from the lender for the same, and it should not mention that the account is settled.
Debt settlement happens when the borrower is unable to repay the credit availed, and the lender offers to settle the account for a mutually agreed-upon amount. Such accounts appear as ‘settled’ in credit reports and lower down the score considerably.
Regularize your repayment record:
This requires you to pay your EMIs and credit card dues on before the due date regularly so that the past payment repayment record won’t show any irregularities.
Practising this for at least 12 months would reflect positively in the credit report and score.
Don’t apply for too many loans:
It is a human tendency that when one bank rejects a credit card or personal loan, we apply to other banks for the same. Also, we repeatedly apply for that with the same bank within a short time period like six months. Such instances decrease the CIBIL score.
Whenever you apply for an unsecured loan such as a personal loan or credit card, banks assess your credit report to evaluate your credit history before giving that credit. Now, credit reporting companies keep track of how many times the credit report has been accessed. This is called Hard Inquiry. Generally, each Hard Inquiry lowers down the score by 10 points, as a Hard Inquiry is linked to a specific loan application.
Usually, for people with low CIBIL Score, it is advised to wait around 12 months before any fresh application for loans or credit cards. Waiting for a year, and meanwhile regularly repaying existing loans (if any) during this period, increases the CIBIL score to a great extent.
Approach NBFC for Loan:
NBFC stands for Non-Banking Financial Company. It is a financial institution that grants loans to customers similar to a bank, but does not perform any other business like accepting deposits, fund transfers, payroll services, etc.
Some of the prominent NBFCs in India include Bajaj Finserv, Tata Capital, Muthoot Fincorp, HDB Financial Services, etc.
However, it is to be noted that generally, NBFCs charge higher interest rates than Banks