Your CIBIL score can affect your Home Loan interest rate

You are aware that your credit score plays an important role in deciding whether you get a loan or not.  As I understand, every bank checks your CIBIL score (or credit score) as part of its loan sanction process.

As per CIBIL website (as on January 31, 2017), 79% of the loans are approved for individuals with a CIBIL score of 750 or more. CIBIL scores ranges from 300 to 900. Higher the better. Your credit score is considered a measure of your credit worthiness. No surprise, a higher score increases your chances of getting a loan.

Recently, Bank of Baroda has moved a step further. The bank has now linked the interest rate (that you get) with your credit score. Higher the credit score, lower the interest you have to pay. It wouldn’t be unwise to expect other banks to follow suit soon.

By the way, CIBIL is not the only credit information company (CIBIL) in India. There are 3 more CICs in India. Experian, Equifax and Crif High Mark. However, CIBIL is the oldest and best known CIC in India.

If you want to find out more about CIBIL score and how your credit behavior impacts your credit score, go the following post on EMICalculator.

What is Bank of Baroda offering?

Depending upon your credit score, the spread over 1-year MCLR will vary from 0 to 100 bps. Home loans are linked to 1-year MCLR.

As on January 31, 2017, the 1-year MCLR for Bank of Baroda is 8.35% p.a. Do note MCLR is subject to revision every month.

For credit score of 760 and above, spread will be 0 bps. Hence, such borrowers will get home loan at 8.35% p.a., assuming 1-year MCLR is 8.35% p.a.

For credit score between 725 and 759, spread will be 50 bps. Hence, such borrowers will get loan at 8.35% + 50 bps = 8.85% p.a. Those borrowers who do not have adequate credit history will also have to a pay a spread of 50bps.

For borrowers with credit score below 725, spread will be 100 bps. Therefore, the interest rate will be 9.35% p.a.

The interest rates are independent on loan amount and loan tenure.

You can see a good credit score can save you a lot of money.

You must note this is a bank-specific policy. Other banks will have a different policy to consider your credit score.Do understand this policy can change any time in the future. However, I see this move as a logical step forward. Not many reasons to withdraw this move.

Free Credit Report

From January 1, 2017, you can download 1 Free Full Credit Report (FFCR) per calendar year (January 1- December 31) from CIC websites. The procedure to download the free credit report is available on websites on Credit Information companies.

This is under a directive from the Reserve Bank of India. You can read the RBI circular dated September 1, 2016

The information in such credit report has to be same as the information provided in a purchased credit report. If you want to access your credit report more than once per calendar year, you will have to pay.

Get your free credit report on CIBIL website.

What should you do?

You can see it pays to have a good credit score. It shouldn’t be too long before other banks follow suit. It is a logical way forward.

Do check your credit score before making a loan application. Now, you have a facility of a free credit report. Make use of the facility. If you feel it is too much of an effort, purchase a credit report.

If you have a poor credit score and rightly so, try to improve your credit behavior. If you do not any credit history, it may not be a bad idea to take a credit card (and please don’t overspend).

In case you have a poor credit score due to any discrepancies, try to get those issues rectified. Do note even though you can raise a dispute with CIBIL (or any other CIC), CICs can’t resolve issues on their own. CICs rely on information shared with them by the credit institutions (bank or other financial institutions). Hence, they merely forward your request to the concerned credit institution and rely on response from them. You can also approach the bank/FI directly to get your issue resolved.