Having a good credit score can help you avail a loan at low interest rates. As per the Credit Information Bureau, Transunion Cibil's announcement, Bank of India will offer home loans at a low-interest rate to borrowers with a Cibil score of 760 or above.

If you are availing a home loan of Rs 30 Lakhs or more and have a credit score of 760 or above, you can get a loan with interest rate that is 10 basis points (bps) cheaper than the rates that are offered to others with a low credit score. If you have a good credit score, you will be offered a home loan with interest rate at 1-year marginal cost of funds-based lending rate (MCLR), while those with a bad credit score will be charged an interest rate that is 10 bps higher than MCLR.

Bank of Baroda made a similar offer in the year 2017 and IDBI also took similar steps.

The most important factor borrowers consider while availing a loan is the interest rate. Borrowers usually expect a low interest rate while availing a loan. To get a loan at a low interest rate, you must have a good credit score.

How to improve your credit score?

It’s very important to check your credit score and credit report before applying for a loan. This will help you to know why your credit score has decreased and how to improve it. By checking your credit report, you can identify outstanding payments and the repayments which were not made on time.

Other factors that affect your credit score are high credit utilization and the total credit that you have availed. If you keep applying for many loans from various banks, these banks will check your credit report (make hard enquiries) and these will be recorded in your credit report.

If you do not want to avail loans by paying high interest rates, you can postpone your plan of availing a loan and fix your credit score during this period. The first things you need to do for improving your credit score are pay off all your outstanding loans as early as possible. Then check your credit score six months before applying for a loan. Apply for a loan only if you have a decent credit score and are confident that your loan application will be accepted.

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