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Credit Score for Education Loan

Credit Score for Education Loan

The high demand and the changing nature of education have made multi-year degrees more expensive. Education loans come to the rescue for those who want to avoid shelling out the entire cost of education out of pocket.

When you apply for an education loan, the lender uses your CIBIL or credit score to determine your creditworthiness. A high CIBIL score ensures the lender that you’re not a credit risk.

But what if, as a student, you don’t have a credit score? Is CIBIL score required for an education loan in that case? How much CIBIL score required for education loan? Does education loan affect CIBIL score?

Read on to find out.

What is the Minimum CIBIL Score Required for Education Loan in India?

The minimum credit score required by different lenders varies however, typically the minimum education loan CIBIL score  required is 750.

If you’re a student without any credit history, then you can apply for an education loan with a working parent as a joint applicant or a guarantor. In such a case, the lender will consider your parents’ credit report to determine their repayment capacity on your behalf.

In this case, the following documents are required:

  1. Identity Proof, such as an Aadhar card, passport, or other government-issued ID for both the student and the co-applicant.
  2. Academic records, including mark sheets and passing certificates from school.
  3. Admission letter from the institute you’re planning to attend with fee structure.
  4. Income tax returns, salary statements and other financial documents of the co-applicant.

Why is CIBIL Score Important for Education Loan Approval?

Education loans allow students to study in their desired country and institution, providing support for tuition, lodging, books, and more. CIBIL scores are central to determining whether an education loan is approved.

With a higher credit score, you can access the following education loan benefits:

  1. Lower interest rates: A good credit score can help you avail of an education loan at lower interest rates, reducing your repayment burden for education loan CIBIL score.
  2. Approval for higher loan amounts: A high credit score also elevates your chances of being approved for a higher education loan amount, reducing your financial burden.
  3. Possibility of longer loan tenure: A good credit score can also help you become eligible for longer education loan tenures. A longer loan tenure results in smaller EMIs, reducing your immediate financial burden.
  4. Faster approval from the lender: With a good credit score over 750, your education loans can get approved faster by the lender, relieving you of any financial uncertainty.

To improve your CIBIL score for education loan, follow these steps:

  • Maintain a good credit utilisation ratio: This refers to the total percentage of credit you have used. It is essential to keep it between 30%-50%.
  • Repay all debts: Making timely repayments on loans, bills, and other bowstrings can help improve tour credit score.
  • Time your loan applications: Getting rejected for a loan can cause your CIBIL score to drop. Do not immediately apply for another loan right after being rejected.

How to Improve Your CIBIL Score for Education Loan Approval

It is crucial to have a good CIBIL score for education loans. Most financial institutions require a minimum CIBIL score for education loans (most set at 750 or higher).  However, if you do not have this score, worry not!

Below are some ways to improve your CIBIL score:

  • Pay all existing EMIs and credit card bills on time, as payment history heavily impacts your score.
  • Keep credit use low and avoid maxing out the limit on your credit card.
  • If you have multiple loans, try repaying or closing them, especially multiple small loans.
  • Students without a credit history must ensure their co-applicant has a strong CIBIL score and stable income.
  • Regularly go over your credit report for errors and promptly have inaccuracies corrected.

How an Education Loan affects your CIBIL Score

Just like any other type of loan, an education loan also affects your credit score depending on your repayment behaviour. It is also reflected in your credit history. If you’re regular with your EMI payments and have a clean borrowing history, it will positively reflect in your credit report.

The positive effects of an education loan on your CIBIL score include the following:

  1. Better Credit Score: If you pay your education loan on time, your credit score improves. This means paying your EMIs on time after the moratorium period without missing.
  2. Better Credit Mix: Credit mix means having different types of credits or loans, both secured and unsecured, such as home loans, car loans, education loans, etc. A diverse credit mix boosts your credit score.
  3. Building a Long Credit History: Education is usually a long-duration loan. Paying off this loan in earnest builds a long and strong credit history, boosting your credit score.

In contrast, repeated delays in EMI repayments can unfavourably affect your credit score. The negative effects of an education loan on your CIBIL score. You can perform a CIBIL score check online to keep track.

What to Do If You Have No Credit Score Before Applying for a Student Loan?

A CIBIL score is required for education loans, especially when applying to traditional private and public-sector banks. But what do you do when you don’t have a credit score?

We outline some ways to apply for an education loan without a CIBIL score:

1. Government-backed schemes

The Indian Government supports students from economically weaker sections through schemes such as the Central Sector Interest Subsidy Scheme (CSIS) or the Credit Guarantee Fund Scheme.

2. Apply with collateral and co-applicants

Many financial institutions will grant students education loans even if they don’t have a CIBIL score, provided they apply with a strong co-applicant or good collateral. This helps lenders to offset risk.

3. Explore NBFCs and alternative lenders

Apart from traditional banks, alternative lenders like NBFCs offer competitive education loans, with rates varying by profile. Some may allow you to apply without a CIBIL score as well!

Can I Get an Education Loan with Low CIBIL Score in India?

Applicants can get an education loan despite having a low CIBIL score in many ways.

These include:

  • Having a co-applicant with good income and a high CIBIL score
  • Maintaining a good academic record
  • Getting admission to a reputed course and university, with good employment outcomes
  • Providing strong collateral
  • Applying for government schemes or NBFCs

Does Co-Applicant’s CIBIL Score Impact the Education Loan?

Yes, the co-applicant’s CIBIL score will impact the education loan. Since most students lack a credit history of their own, financial institutions will look at the co-applicant’s (usually a parent or guardian) credit history and income. A poor CIBIL score could lead to rejection, higher interest rates, and other unfavourable terms. In contrast, a good CIBIL score could lead to better repayment terms and interest rates.

Conclusion

A good CIBIL score for education loan above 750 provides many benefits when applying for an education loan. If you’re a student, the bank considers the credit score of your parents or guardian. Timely repayment of an education loan affects your credit score positively.

Want to apply for a loan for your higher education but are not sure if you have the perfect credit score? You can perform an online CIBIL score check free with Tata Capital. Visit our website to check your credit score and get started with your loan process.

You can also apply for a quick education loan with us at competitive interest rates. To know more, contact us today! For more information, head to the Tata Capital website or download the app today!

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FAQs

Can I Get An Education Loan Without Having a Credit Score?

You can get an education loan even without a credit score. For this, you will have to apply for a co-applicant with a good CIBIL score.

What Is a Good CIBIL Score For an Education Loan?

Most financial institutions require a CIBIL score of 700 or more for education loans and others. However, some institutions offer loans for lower credit scores.

Does My Education Loan Affect My CIBIL Score?

Education loans do affect your CIBIL score. They are a form of credit, so if proper repayment management improves CIBIL scores.

How to check the CIBIL score for an education loan?

To check your CIBIL score, you can register on CIBIL’s official website. You can also check it using Tata Capital’s credit score checker.

What is the low CIBIL score for student loan?

The minimum credit score for an education loan is usually 685. However, some financial institutions may offer loans at lower scores.

Is 650 a good CIBIL score for education loan?

In general, financial institutions prefer CIBIL scores of 685 and above. However, some may offer education loans to those with lower credit scores as well.

Which bank gives education loans with low CIBIL score?

Many banks provide education loans with low CIBIL scores upon furnishing additional documents demonstrating financial stability. These documents ensure the lender regarding your creditworthiness.

Can I get 40 lakhs education loan without collateral?

Yes, depending upon the lender, you can take advantage of a 40 Lakh education loan without collateral. 

Can a Bank reject an education loan?

Yes, a bank can reject an education loan for various reasons, including a low credit score.

Can I get education loan with 50% marks?

Yes, you are eligible for an education loan with 50% marks from some lenders. However, in most cases you must have an admission letter from the university you’re planning on attending.

What is perfect CIBIL score?

A CIBIL score of 900 is considered perfect. However, a score of 750 and above is usually considered excellent by most lenders.

What is the minimum CIBIL score required for an education loan in India?

How much CIBIL score is required for an education loan varies by lender, but most require a score of at least 650-700.

 

Is CIBIL score mandatory for an education loan for students?

A CIBIL score is usually required for education loans. However, some lenders may accept a co-applicant’s score or collateral instead.

Who’s CIBIL score do lenders check for an education loan—the student or co-applicant?

Since students usually do not have a credit history yet, most financial institutions will check the co-applicant’s credit score.

How can I improve my CIBIL score before applying for a student loan?

Before applying, one can get a good credit score for education loans by paying credit bills and EMIs on time, keeping credit utilisation low, and closing existing debts.

Can I get an education loan if the co-applicant’s CIBIL score is low?

Before applying, one can get a good credit score for education loans by paying credit bills and EMIs on time, keeping credit utilisation low, and closing existing debts.

How does missing EMI on an education loan affect CIBIL score?

Missing EMI payments can negatively affect the co-applicant’s and borrower’s CIBIL scores. This is because it may indicate poor repayment capacity.

Do government schemes for education loans have a CIBIL score requirement?

Government education loan schemes mainly focus on income eligibility. While credit scores are reviewed, students without a credit history or strong co-applicants can still apply if they fall under economically weaker sections.

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