Planning to buy a house in 2026? Before finalising an apartment purchase, ensure your credit profile is healthy and, ideally, that previous loans have been fully paid off to improve your chances of securing a lower rate.
Financial experts also recommend keeping your home loan EMIs within 40% of your monthly take-home income to avoid overstretching your budget. This helps keep your finances comfortable even after accounting for everyday expenses. Borrowers with strong credit profiles, typically those with a score of 750 and above, are considered lower risk by lenders and are more likely to qualify for the most competitive home loan interest rates.
The Reserve Bank of India (RBI) on December 4, 2025, reduced the repo rate by 25 basis points to 5.25%. There were four rate reductions earlier in the year, bringing the repo rate, which stood at 6.5%. So, if you had a home loan of ₹50 lakh for a tenure of 20 years at 8.50% interest, your EMI would reduce from around ₹43,000 to ₹39,000. Budget 2026 is also expected to introduce incentives for homebuyers.
Why your credit score matters
“A credit score plays a crucial role in determining the interest rate offered on a home loan. Borrowers with strong credit scores, typically 750 and above, are seen as lower risk and usually qualify for the most competitive rates,” says Adhil Shetty, CEO, BankBazaar.
Those with lower scores may still get a loan, but often at higher interest rates, which can significantly increase the total cost over a long tenure.
“The resultant difference in interest rate could be marginal, but over a typical 20-year tenure of a home loan, it may result in savings of lakhs in total interest paid,” says a PNB Housing Finance spokesperson.
For instance, a borrower with a CIBIL score of 750 or above is typically eligible for the most competitive rates, whereas a borrower with a score in the 700-725 range may face a higher interest rate.
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Two borrowers with the same income and the same value of collateral would receive different rates based exclusively on their credit history. Thus, for example, a borrower with a credit score higher than 750 may be granted a rate that is 50-100 basis points lower compared to a borrower with a credit score between 650 and 700.
“On extended repayment horizons, this can make quite a difference in the amount of interest paid. For this reason, the most important implication of credit discipline for borrowers is lower borrowing costs on average over time,” says Pramod Kathuria, founder and CEO, Easiloan.
Here, it is also important to understand how credit scores work for joint home loans. For a joint home loan, lenders check each applicant’s individual CIBIL score, not a combined one. While the chances of loan approval go up if one of the applicants have a high credit score, a lower score can affect loan eligibility, interest rate, and sanctioned amount, even if the other spouse has an excellent score.
Also Read: Hidden costs of home buying: What you need to know before you sign on the dotted line
Both incomes are added for repayment capacity, but liabilities belong to each individual. Ideally, both applicants should maintain a strong credit score for better approval and terms.
Steps to improve your credit score
Improving a credit score is built on consistent, disciplined financial behaviour. “The most effective strategies focus on the core factors that credit bureaus use to calculate the credit score of applicants,” according to PNB Housing Finance.
Let us take a look.
Timely payments: Ensure all Equated Monthly Instalments (EMIs) and credit card bills are paid on or before the due date.
Manage credit utilisation ratio (CUR): It is the amount of credit you are using relative to your total available credit limit and should ideally be limited to 30%. For example, if your total credit limit is ₹100,000, try to keep your outstanding balance below ₹30,000. Paying down existing credit card debt is one of the quickest ways to improve this ratio.
Avoid multiple hard inquiries: Each time a borrower applies for a new loan or credit card, the lender makes a 'hard inquiry,' which can temporarily lower the score. It is safest to avoid applying for multiple credit products simultaneously in the months leading up to a home loan application.
Maintain a healthy credit mix: A mix of secured loans (like a car loan) and unsecured loans (like a personal loan) demonstrates responsible management of different credit types. However, this should be built organically over time, not by taking unnecessary loans.
Monitor and rectify errors: Regularly checking your credit report for any inaccuracies, such as loans you have already paid off or incorrect personal details, is a safe and simple way to ensure your score accurately reflects your financial standing.
These steps not only improve the score but also build a strong financial foundation, enabling borrowers to access better rates and reduce the lifetime cost of their home loan.
In 2026, your credit score will matter most for home loans. Keep it high. Even a small drop in interest rate can save you a lot of money in the long run.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics