In today’s time, buying a house is a dream for many Indians. With rising property prices, taking a home loan has become almost necessary. But while applying for a loan, most people focus only on documents, income proof and bank balance. One key factor that people often forget is their credit score. This three-digit number plays a big role in deciding not just your loan approval, but also how much EMI you will pay.
Let’s understand what a credit score is, how it affects your home loan, and how maintaining a good score can save you lakhs over time.
What Exactly is a Credit Score and Why is It Important?
A credit score is a number between 300 and 900 that shows your creditworthiness. It is calculated based on your past repayment history, loan and credit card usage, and whether you have defaulted in the past. In India, this score is given by credit bureaus like:
- CIBIL
- Experian
- Equifax
- CRIF High Mark
A high credit score (750 or above) tells lenders that you are financially responsible and are likely to repay your loans on time. A low score (below 650) signals risk, and banks either reject such applications or charge higher interest rates.
The Real Impact of Credit Score on Your EMI
To understand the real difference a credit score makes, let’s take a simple example.
Case 1: Credit Score Above 800
- Loan Amount: Rs. 50 lakh
- Loan Tenure: 25 years
- Interest Rate: 8.1%
- Monthly EMI: Rs. 38,923
- Total Interest Payable: Rs. 66.76 lakh
Case 2: Credit Score of 720
- Loan Amount: Rs. 50 lakh
- Loan Tenure: 25 years
- Interest Rate: 8.85%
- Monthly EMI: Rs. 41,618
- Total Interest Payable: Rs. 74.85 lakh
👉 Difference in EMI per month: Rs. 2,695
👉 Total extra interest paid in 25 years: Rs. 8.09 lakh
Yes, just a difference of 80 points in credit score can make you pay over Rs. 8 lakh more in interest!
Low Credit Score = High Loan Rejection Risk
If your score falls below 650, banks and NBFCs treat you as a high-risk customer. In such cases, either your loan application is rejected, or you are given a loan at much higher interest, sometimes over 10%.
Also, the bank may put strict conditions like:
- Lower loan amount approved
- More paperwork and income proof
- Need to bring a co-applicant or guarantor
- Loan processing takes longer
So, it’s not just about loan approval—a good credit score is also the key to cheaper and faster loans.
Why Does a Good Credit Score Matter Even More in 2025?
As of April 2025, the Reserve Bank of India (RBI) has recently cut the repo rate by 25 basis points. This means interest rates are slowly falling, and banks may offer home loans below 8% for those with excellent credit scores.
Here’s how some current home loan interest rates look in April 2025:
| Bank / Lender | Interest Rate (Approx.) | Minimum Credit Score Required |
| Union Bank (Public Sector) | 8.10% | 800+ |
| ICICI Bank (Private Bank) | 8.75% | 750+ |
| HDFC Ltd | 8.65% | 750+ |
| LIC Housing Finance | 8.50% | 750+ |
| Kotak Mahindra Bank | 8.70% | 760+ |
Those with high scores will get the best deals.
Simple Tips to Maintain a Strong Credit Score
You don’t need to be a finance expert to have a good score. Just follow these simple rules:
1. Repay Your Loans on Time
Your repayment history makes up 35% of your credit score. Even one late EMI can affect your score.
2. Use Your Credit Card Wisely
Avoid spending more than 30% of your card’s credit limit. High usage regularly shows poor money management.
3. Limit New Loan Applications
If you apply for multiple loans or cards at the same time, it shows credit hunger and lowers your score.
4. Keep Your Old Credit Cards Active
The longer your credit history, the better it is. Don’t close old cards if they have no annual charges.
5. Check Your Credit Report Every 3 Months
This helps you find any errors or suspicious activities. If something looks wrong, raise a dispute immediately.
Real-Life Comparison: Two Home Buyers, Two Credit Scores
Let’s look at a practical example.
Buyer A: Good Score of 800+
- Loan amount: Rs. 60 lakh
- Interest rate: 8.1%
- Monthly EMI: Rs. 46,708
- Total interest in 25 years: Rs. 80.12 lakh
Buyer B: Score of 690
- Loan amount: Rs. 60 lakh
- Interest rate: 9.25%
- Monthly EMI: Rs. 51,451
- Total interest in 25 years: Rs. 94.35 lakh
👉 Buyer B pays Rs. 13 lakh more in interest just because of a lower score.
This proves how your credit score not only impacts your chances of loan approval but can also cost you lakhs of rupees in the long run.
Is a Home Loan Possible with a Low Credit Score?
Yes, it’s possible, but not ideal. If your score is low:
- Some private NBFCs or HFCs may still offer loans
- But the interest rates will be higher
- The process may take longer
- You may need a guarantor
- And the chances of hidden charges are more
It’s always better to work on improving your credit score first, even if it takes a few months, than to go for a bad deal today.
Quick Summary: Credit Score vs Home Loan Benefits
| Credit Score | Loan Approval Chance | Interest Rate Range | Loan Conditions |
| 800+ | Very High | 8% to 8.5% | Best rates, easy approval |
| 750–799 | High | 8.5% to 9% | Mostly approved |
| 700–749 | Moderate | 9% to 9.5% | May need more documents |
| 650–699 | Low | 9.5% to 10.5% | Strict conditions |
| Below 650 | Very Low | 10.5%+ | Difficult or rejected |
