When you decide to study abroad, an education loan is one of the most critical factors. A study loan can be your savior because of the growing cost of higher education today.
It will assist you with all of your financial demands throughout your course.
However, numerous requirements must be met before you can apply for the loan, and your CIBIL score is the most important one.
There is a clear connection between your CIBIL score and the school loan, and it is accurate to say that your credit score can make or break your ability to obtain a student loan.
What is a CIBIL Credit Score?
The first credit information company in India is CIBIL (Credit Information Bureau (India) Limited). Every month, CIBIL must receive credit card payments and loan histories from every national bank and financial institution. CIBIL then produces the Credit Score after collecting and maintaining the Credit Information Report (CIR).
A three-digit figure called a CIBIL Score can range from 300 to 900. This figure, which determines your creditworthiness based on the data in your CIR, is calculated.
Lenders use this rating to assess your loan application. A higher score shows that you are more likely to repay the loan on time, decreasing the likelihood of missing a payment and making you a less hazardous borrower.
As a result, it raises your chances of receiving a loan. A lower score indicates that you are a riskier borrower who is less likely to make timely loan repayments and more likely to experience credit default. As a result, it decreases your chances of obtaining credit.
The CIBIL Score: How is it Calculated?
The CIR report and six months’ worth of past financial data are used to inform how the CIBIL algorithm determines the CIBIL credit score based on 258 different factors with varying weights. Some aspects of your financial credit history assess your score.
Factors affecting CIBIL Score
Various things influence your CIBIL credit score, including your repayment history. Most of your credit score reflects how quickly you have paid off your debt. Any missed credit card payments or unpaid loans will harm the CIBIL score.
- Credit Utilization Limit: Going above your credit limit has a negative impact on your CIBIL score. It reveals bad financial practices.
- Duration of Credit Use: In plain English, this refers to the total years the credit account has been active. The lender can decide on the loan application more quickly if the applicant has a long and solid credit history.
- Only Paying the Minimum Amount Owed: You have a much higher chance of getting trapped in debt if you make minimum monthly payments. The leftover balance will continue to accrue interest. Additionally, it casts a negative light on repayment behavior.
- Credit Mix: A balanced mix of secured and unsecured credit is crucial. Lenders see it favorably since it demonstrates that you have experience managing both types of credit. Additionally, having just one sort of credit can harm your credit score.
CIBIL score required to apply for an Education Loan
The CIBIL score of the applicant and co-applicant is one of the most important variables in an education loan. The score may fall between 1 and 999.
However, a CIBIL score of 750 or higher is optimal for obtaining a degree. Loan acceptance can be difficult for applicants with CIBIL scores under 600.
How will your CIBIL Score affect your student loan?
According to statistics, 90% of loans are typically given to applicants with scores above 750. Student loans are no exception to the rule that your credit score boosts your chances of getting approved for a loan.
Possessing a high credit score has several benefits that include:
- The lower interest rate
- Faster clearance with less paperwork
- Increased loan amount
- Increased card limit
- A longer-term
The majority of students may have yet to use a credit card or loan; therefore, they lack a credit history. In these situations, the lender investigates the credit history of the guarantors, typically the borrower’s parents, when the borrower applies for an education loan. Therefore, there is a strong likelihood that the loan will be rejected if the parents have a low CIBIL score.
How may your CIBIL score be raised?
These are the steps you can take to increase your credit score.
To qualify for a student loan and gain access to a prestigious institution for further study, you must have a high CIBIL score.
If you examine your credit score and execute the correction mentioned above, you can immediately raise your CIBIL score and quickly and affordably apply for an education loan.
Also, there are education financing websites like GyanDhan, which are expressly made to enable students to avail of education loans irrespective of their CIBIL score and can help them pursue their study abroad.
- Regularly check your CIR and CIBIL scores – The first step is to periodically check your CIR and credit score on the CIBIL website. Even though you haven’t defaulted, your CIR may occasionally show a problem due to a technological or bank error. If you have a good argument, you should immediately contact CIBIL to report the problem and have it fixed.
- Pay down the debt promptly. Failure to make payments on time and defaults have a negative impact on your credit score. Make all of your payments accordingly and on schedule. You’ll get a better grade as a result.
- Avoid serving as a guarantor for someone who is less creditworthy because it will lower your CIBIL score if they default.
- Prefer a variety of credit – You should use a variety of credit, with secured loans making up a larger portion of the mix than unsecured loans.
- Don’t use all of your credit cards at once – Don’t use all of your credit cards at once. Using at most 40 to 50 percent of your credit limit is best.
- Loans with Collateral If you have a low credit score, having a good piece of property as Collateral may assist you in getting your loan authorized. Some banks will also accept loan protection policies as Collateral.
