Your creditworthiness is one of the most important factors lenders consider when evaluating any loan application. This makes it essential to understand the impact of your CIBIL score on Loans Against Property (LAPs).

A strong credit score can significantly improve your chances of securing an LAP with favourable interest rates and a higher sanctioned amount. On the other hand, a low score may result in higher interest rates – or even outright rejection of your application.

In this article, you’ll learn more about the impact of CIBIL scores on LAP, the typical minimum score required, and effective ways to enhance your creditworthiness.

What Is a Loan Against Property?

A Loan Against Property is a type of secured loan where you can pledge your residential or commercial property as collateral to the lender. The funds availed can be used for a variety of personal or business purposes, such as medical expenses, higher education, home renovations, weddings, or even business expansion.

What Is a CIBIL Score?

A CIBIL score, or credit score, is a three-digit number that reflects your credit history and overall financial behaviour. It helps lenders assess how likely you are to repay borrowed money on time.
In India, there are four major Credit Information Companies (CICs) that generate credit scores for individuals: TransUnion CIBIL, Experian, Equifax, and CRIF High Mark.
Among these, TransUnion CIBIL is one of the oldest and most widely used. The scores provided by this bureau are commonly referred to as CIBIL scores.
Credit scores typically range from 300 to 900. A score between 700 and 749 is generally seen as good, while scores of 750 and above are considered excellent.

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Impact of Your CIBIL Score on a Loan Against Property

Here's how your CIBIL score can influence various aspects of your LAP application:

• Eligibility: Lenders generally prefer a credit score of 700 or above when evaluating applications for Loans Against Property. A higher score indicates responsible credit behaviour, making you appear as a low-risk borrower.
• Interest Rates: A strong credit score can help you secure lower interest rates, thereby reducing your overall borrowing cost. Conversely, a low credit score may lead to higher interest rates, as lenders attempt to mitigate the perceived risk.
• Loan Amount: Applicants with higher credit scores may be eligible for a larger loan amount, as they are viewed as more financially reliable. On the other hand, a low score could limit the sanctioned loan amount.

Note: While your CIBIL score is an important factor, lenders also consider other parameters such as your age, income, employment stability, existing financial obligations, and internal lending policies when assessing your final eligibility, interest rate, and loan terms.

Ways to Improve Your CIBIL Score

If you're planning to apply for a Loan Against Property, it's wise to improve your credit score beforehand, if necessary. Here are some practical steps that can help:

Check Your Credit Report

Review your CIBIL or credit report frequently to identify any errors or discrepancies. Mistakes in your report – such as incorrect personal details, unauthorised transactions, or outdated information – can negatively affect your score. If you find incorrect information, raise a dispute with the respective credit bureau to get it rectified.

Maintain a Low Credit Utilisation Ratio

Your credit utilisation ratio is the percentage of your available credit that you're using. It's generally advisable to keep this ratio below 30%. Higher utilisation can suggest to lenders that you’re overly dependent on credit, which may harm your score.

Repay Bills and EMIs on Time

Make sure to pay your credit card dues, loan EMIs, and utility bills on or before the due date. Consistent on-time payments help build a strong credit history and prevent late fees or penalties.

Pay Off Existing Debt

Reducing outstanding loans and credit card balances improves your debt-to-income ratio (DTI), which should ideally be below 30%. A lower DTI shows lenders that you can manage repayments responsibly.

Set Up Automatic Payments

Enable auto-pay for credit card bills and loan EMIs to ensure timely payments. This helps maintain consistency in repayments, positively impacting your credit score.

Apply for New Credit Only When Necessary

Try not to apply for too many loans or credit cards within a short period. Each application triggers a hard enquiry, which can temporarily reduce your score. Too many such enquiries may give the impression that you're over-reliant on credit or financially stressed.

Final Thoughts

Your credit score is an important aspect of successfully securing an LAP. By paying your bills on time, maintaining a low credit utilisation ratio, and regularly reviewing your CIBIL report for any discrepancies, you can enhance your credit profile and improve your chances of securing better loan terms.

If you’re looking for a Loan Against Property with flexible repayment tenures and attractive interest rates, SMFG Grihashakti can help. Use our LAP eligibility calculator to estimate the loan amount you may qualify for and apply online today.