A credit score is an important indicator of your creditworthiness and loan repayment capacity. It also plays a crucial role in determining your home loan eligibility and the interest rates applicable to it
Banks and financial institutions increasingly rely on an individual’s creditworthiness, repayment capacity, and financial integrity to mitigate the risks of defaults or loss of loaned funds. In this context, your three-digit credit score can significantly influence the cost of borrowing and the EMI on your home loan.
As a borrower, it is essential to consistently repay all your credit card bills and previously availed personal loans to ensure your home loan application is viewed more favourably by your lender.
The idea is simple: repayment is directly linked to your financial integrity. If you are consistent with repayments and have a long history of the same, it often lays the groundwork for eligibility for lower interest rates on home loans. This write-up will discuss this simple concept in detail.
What is a credit score?
To reflect your financial behaviour and credit history, prominent credit bureaus in India—such as Equifax, TransUnion CIBIL, Experian, and CRIF Highmark—provide a three-digit score ranging from 300 to 900
This score is calculated based on various factors, including loan repayments, credit card usage, previous credit history, outstanding debts, repayment timelines, and any defaults. A higher score is naturally a positive indicator—it indicates responsible financial behaviour and marks you as a low-risk borrower. It significantly impacts your home loan EMI eligibility, as well as your chances of getting premium credit cards and other financial benefits.
What is the impact of your credit score on home loan interest rates?
Lenders in India offer varying interest rates based on borrowers’ credit scores. For instance
- Borrowers with a credit score of 800 or above are eligible for the lowest home loan interest rates, with smoother loan processing starting at 8.1 per cent per annum from institutions like Union Bank of India.
- If your score falls between 700 and 749, the interest rate may rise to 8.85 per cent-9 per cent, significantly increasing your monthly EMIs and total repayment amount.
- A lower credit score (below 650) can result in even higher interest rates, sometimes exceeding 10 per cent, along with strict repayment terms and conditions. That is why, to sustain a high credit score, you need to keep your credit utilisation ratio as low as possible. Preferably lower than 30 per cent.
For example, if you take a ₹50 lakh loan for 25 years at an interest rate of 8.1 per cent (credit score: 800), your EMI will be approximately ₹38,923, with a total interest outgo of ₹66.76 lakh. In contrast, at an 8.85 per cent rate (credit score: 720), the EMI rises to ₹41,618, and the total interest payable increases to ₹74.85 lakh. This demonstrates the significant impact even a minor change in your credit score can have.
Note: Data used here is used for illustrative purposes only. For the most recent home loan interest rates and applicable charges, along with other details, reach out to your respective financial institution. These rates are subject to change according to the policies of the bank or financial institution.
Why does maintaining a high credit score matter?
A good credit score not only secures lower EMIs but also improves your chances of home loan approval and access to pre-approved loans. It can help you save significantly over the years. To maintain or improve your score, consider the following:
- Pay EMIs and credit card dues on time.
- Keep your credit utilisation ratio below 30 per cent.
- Avoid multiple loan inquiries within a short period.
- Avoid applying for too many credit cards or loans in a go.
- Keep on checking your credit score consistently for discrepancies.
Current home loan interest rates
As of April 2025, home loan rates in India range from 8.1 per cent to over 12 per cent, depending on the lender and borrower’s credit profile. Public sector banks like Punjab National Bank offer competitive rates starting at 8.15 per cent, while private lenders like ICICI Bank have rates beginning at 8.75 per cent.
Note: The interest rates discussed above are for illustrative purposes only. For the updated and most recent rates applicable consider reaching out to your respective lending institution.
Maintaining a high credit score can save you lakhs over the tenure of your home loan, making it a crucial aspect of financial planning.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
