Your CIBIL Score reflects your creditworthiness and is vital when it comes to securing the funds you need to make your dreams come true, including your educational aspirations. So, let us look into the important role of your credit score in securing an education loan, and how such a loan can impact your CIBIL Score. We will also explore how you can build creditworthiness with a unique CIBIL-powered offering from Bajaj Finserv.
Why is CIBIL Score important for an education loan?
The CIBIL Score is a three-digit numeric summary of your credit history. It plays a significant role in the approval of your education loan application. Lenders use this score to evaluate the risk associated with lending money to you. A high CIBIL Score indicates that you have handled your credit responsibly in the past, which increases your chances of loan approval.
When it comes to education loans, lenders look at your CIBIL Score to determine your reliability as a borrower. This is especially important for unsecured loans like education loans, which do not require any collateral and are therefore riskier for lenders. A good CIBIL Score of 750 or more can ensure a lower interest rate on your loan, a higher loan amount, and a flexible repayment tenure.
If you are a student seeking an education loan but do not have a credit history yet, do not worry, there are still ways in which you can secure an education loan to fulfil your dreams of higher education:
- Apply for a secured education loan by providing collateral. By doing so, you can easily bypass having a CIBIL Score. In fact, providing collateral like real estate or gold can not only improve your chances of approval but also help you lower your interest rates.
- Approach Non-Banking Financial Companies or NBFCs whose criteria are generally less strict compared to banks and do entertain borrowers that other financial institutions might not.
- Producing a guarantor or a co-signer with a good credit record to improve your loan eligibility.
How education loans affect CIBIL Score?
Yes, an education loan, like any other form of credit, does affect your CIBIL Score.
- Repayment history: Your repayment behaviour is the most important factor influencing your credit score. If you are regular with your EMI payments and have a clean borrowing history, it will positively reflect in your credit report. On the other hand, repeated delays in EMI repayments can adversely affect your score.
- Loan liability: Your overall loan liability increases when you take on an education loan, lowering your CIBIL Score. Do not fret, though, as your credit score will improve as you start repaying your loan in a consistent fashion.
- Co-applicant’s creditworthiness: While having a co-applicant can greatly boost your chances of getting your loan approved, remember that their creditworthiness will be affected exactly as yours and vice versa, based on whether the loan repayments are punctual or not.
- Loan enquiries: Every time you apply for a loan, it triggers a hard enquiry into your credit report as lenders seek to evaluate the risk associated with extending funds to you. Each of these temporarily lowers your score, so if there are numerous hard enquiries within a short span, it can devastate your credit health. Remember to carefully assess your eligibility and only apply when you are confident of success. As mentioned previously, approaching NBFCs might be a better bet.
- Credit utilisation: The extent to which you utilise your available credit limit also significantly affects your CIBIL Score. If you have an existing line of credit like a credit card while repaying your education loan, it is critical that you manage your credit utilisation efficiently. Ideally, keeping your credit utilisation ratio below 30% is recommended to maintain a healthy CIBIL Score and reassure lenders that you can be trusted with borrowed funds.
- Credit mix: A diversified credit profile greatly enhances your CIBIL Score, provided you are able to manage your financial obligations efficiently. An unsecured loan like an education loan can contribute to a healthy credit mix and potentially boost your CIBIL Score if you are responsible with your EMI payments.
How can Bajaj Finserv Credit Pass help?
Bajaj Finserv Credit Pass is an innovative service that allows you to track and monitor your credit health. With it, you can check your credit score updates every month, get a personalised credit dashboard, and learn about the factors that affect your credit health. You can also predict how a new credit product might impact your score and plan future EMI commitments even before you apply. This can be particularly helpful when planning to apply for an education loan.
While the CIBIL Score is crucial in securing an education loan, it is not the only factor considered. Even with a low CIBIL Score, there are strategies to navigate the loan process. Notably, the Kerala High Court has ruled that students’ education loan applications cannot be rejected solely based on their credit score. Beyond securing loans, maintaining a good CIBIL Score is beneficial for building financial credibility. Therefore, monitoring your CIBIL Score and overall financial health is key to unlocking opportunities for a brighter future.
