Buying a home is often seen as one of the biggest financial milestones, but the real challenge starts long before the dream home is finalised. While it may feel like your salary is the biggest deciding factor for a home loan, banks actually dig much deeper into your financial behaviour to judge how comfortably you can handle long-term debt.
Among all the checks they perform, one key metric quietly carries more weight than income itself. It helps lenders understand how much of your earnings are already tied up in EMIs and obligations and whether you truly have enough breathing room to take on a new loan. Can you guess what it is? The answer is—your credit score. This simple ratio often becomes the deciding factor between approval and rejection, making it one of the most important numbers in your loan application journey.
A high credit score is a powerful financial tool that directly reduces the total cost of a long-term mortgage. Lenders charge borrowers with low credit scores higher interest rates. A high score can also secure interest rates 0.5% to 1.5% lower than average scores. A 1% rate reduction saves a substantial amount over a tenure of 20-30 years.
What is the perfect credit score?
While 700 is the minimum threshold to get loan approvals, an even higher score can unlock the best interest rates and loan terms for you. The higher your score, the more you save.
Who calculates your score?
In India, credit scores are calculated by four major Credit Information Companies licensed by the Reserve Bank of India.
1. CIBIL: This is the most widely used bureau by Indian banks. The term 'CIBIL score' is often used interchangeably with credit score.
2. Experian India: Frequently used by fintech lenders and digital platforms for quick digital loan approvals.
3. CRIF High Mark: Specialises heavily in microfinance, commercial loans and retail lending sectors.
4. Equifax India: Commonly used by major private banks and non-banking financial companies.
Factors that shape your credit score
- Payment history
- Credit utilisation
- Length of credit history
- Types of credit you hold
- How often do you apply for new credit
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