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Want low home loan interest rates? A good credit score helps

If you credit score is over 750-800, most banks and housing finance companies will offer their best – that is, lowest – interest rates to you.

Looking to apply for a home loan? Make sure to check your credit score first. Banks covet borrowers with higher credit scores, offering them their best interest rates as well as other easy terms and conditions.


All new retail floating-rate home loans sanctioned since October 1, 2019 are linked to an external benchmark for determining interest rates. In the case of most banks, the repo rate happens to be the benchmark.

The effective interest rate – what is charged to the home-loan borrowers - is made up of the repo rate, the spread that the bank decides, and the credit risk premium, which is determined by the borrower’s credit score. Your credit score, therefore, could directly lead to a significantly lower interest rate burden.

Higher credit scores mean lower loan rates

No loan or credit card application is approved without the lenders evaluating the borrower’s credit history and credit score.

Generally, the higher the score, the lower the chances of a default. For example, in the case of TransUnion CIBIL, the scores can range from 300 to 900.


“Most borrowers fall in the 700-800 range. A small percentage has scores higher than 800 and banks are keen on lending to this category,” says Vipul Patel, founder of Mortgageworld, a loan advisory firm. “Most borrowers fall in the 700-800 range. A small percentage has scores higher than 800 and banks are keen on lending to this category,” says Vipul Patel, founder of Mortgageworld, a loan advisory firm.

A credit score is treated as an important metric as it indicates the borrower’s creditworthiness. Computed by credit information companies such as TransUnion CIBIL, Equifax, Crif Highmark, and Experian, the score depends on several factors including your repayment track record, delayed EMI payments, unpaid credit card dues, number of loans and credit cards in your portfolio or even loan applications, errors in credit reports and so on.

Put simply, a muddled repayment history – loan defaults or delayed EMI payments - could drag down your credit scores, which could mean the bank may reject your loan application or charge a higher rate of interest.

For example, State Bank of India (SBI) offers a card rate of 9.15 percent to borrowers with a credit score of more than 750. If it's between 700 and 749, borrowers will have to pay 20 basis points more. One basis point is one-hundredth of a percentage point. If it's lower than 700, then the rate applicable will be as high as 9.45 percent.

If you are looking to transfer your home loan from another bank to SBI, the rates start at 8.5 percent for those with credit scores of over 800 during the offer period that will end on June 30. It is 8.6 percent for credit scores between 700 and 749. SBI does not offer these concessional rates to borrowers with credit scores of under 700.

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