With the rising cost of education all over the world, the demand for education loans has also increased. These loans help students realize their dream of studying at a well-recognized university in India or abroad. The credit score is a major criterion for student loans in India. A lower credit score can significantly impact education loans by affecting loan terms and approval.

In this article, we will explore the tips to improve your credit score before taking education loans. We have also covered the information about the role of credit score for education loans, along with the effects of a low CIBIL score for education loans.

Role of CIBIL Score for Education Loans

Education loans make higher education affordable to students. These loans help students cover their educational costs, such as tuition fees, living expenses, purchase of study materials and course-related equipment, and other miscellaneous expenses. Thus, increasing demand for education loans in recent years. However, the CIBIL score of the student and their co-applicant plays a crucial role in obtaining education loans.

Students should understand how a CIBIL score affects education loans before applying for one. It is one of the major eligibility criteria for an education loan. The credit score of a student and their co-applicant significantly impacts their education loan by affecting the loan terms. 

Role of Credit Score for Education Loan Eligibility

As we have discussed earlier, the CIBIL score of a student and their co-applicant is one of the major eligibility criteria for an education loan. Lenders assess the income and the creditworthiness of the applicants before offering them education loans. They thoroughly evaluate the credit scores of students and co-applicants to understand their credit history and repayment capacity, especially for unsecured loans. It helps lenders understand the risk of offering student loans to them.

Education Loan CIBIL Score Requirements

The education loan CIBIL score requirements vary from lender to lender. The minimum CIBIL score required for an education loan depends on the lender and collateral involvement in the loan. Most lenders offer unsecured education loans to applicants with a credit score of 685 or more. However, the minimum CIBIL score required for an education loan with collateral from the State Bank of India (SBI) is 591. 

Effects of a Low Credit Score for Education Loans

Not meeting the education loan CIBIL score requirements of the lenders significantly affects the student loan. A low CIBIL score influences the loan terms, such as the loan amount, interest rate, and repayment terms. It also affects the chances of the education loan approval. The following are several effects of a low credit score for education loans:

Affects Loan Terms

The CIBIL score of the applicants significantly affects the education loan terms. Having a higher credit score helps you secure more favorable loan terms, such as higher loan amounts, lower interest rates, and flexible repayment terms. However, a low credit score increases the risk for lenders, making them offer limited loan amounts with relatively high interest rates. Lenders can even reject your education loan application due to a low credit score. 

Low Credit Score for Education Loan Approval

A credit score plays a major role in education loan approvals, especially for unsecured education loans from private lenders. As we have learned earlier, each lender has a minimum credit score requirement, according to which they approve education loans.

Private lenders are very strict about the credit score for education loans, as they mainly offer unsecured student loans that do not have the safety net of collateral. Applicants should meet the CIBIL score requirements of the lenders to increase their chances of education loan approvals. Lenders reject many student loan applications due to a low CIBIL score. 

Worried that your education loan application will get rejected due to a low CIBIL score? WeMakeScholars can help you turn the situation around. With years of experience handling thousands of loan applications, we understand what lenders look for and can guide you in improving your credit score. Get in touch with us today by requesting a callback so that our team can help you improve your CIBIL score and get the best education loan for you.

How to Improve CIBIL Score before an Education Loan

Your CIBIL score is an important factor affecting your education loan terms and approval. Having a low CIBIL score can even get your education loan rejected. Hence, understanding how to improve the CIBIL score before can help you before applying for an education loan. The following are several tips to improve the CIBIL score for education loans:

Monitor the Credit Report Regularly

You should monitor your credit report to identify any changes in your credit score. Tracking your credit report can help you identify any issues in your credit report, such as incorrect information and delayed or missed payments, that you have already paid for. These errors can negatively impact your credit score. Hence, monitoring your credit report regularly can help you identify and resolve such issues, which ultimately helps you improve your credit score.

Avoid Taking Multiple Loans

Taking multiple loans in a short time affects your credit report and can result in a lower credit score. This also affects eligibility for education loans. This is why you should avoid taking multiple loans to improve your credit score before taking an education loan.

Use Credit Cards Wisely

You should use your credit card responsibly to improve your credit score. Maintain a healthy credit utilization ratio on your credit card by avoiding maxing out the limit. Make sure you pay all your credit dues on time to maintain a good credit score. Making timely payments on your credit card can help you improve your credit score for education loans.

Pay Your Dues on Time

Paying your dues on time is one of the most effective ways to improve your credit score. Your CIBIL score majorly depends on the repayments you make on your credit. You should make repayments to your credit services, such as personal loans and credit cards,  on time to improve your credit score. Clearing all your dues on time can help you increase your credit score before applying for a student loan.

Monitor your Credit Utilization Ratio

Credit utilization ratio refers to the percentage of the amount you have used out of your total credit limit. It is a major factor affecting credit scores. Credit utilization significantly contributes to a credit score. Using too much credit can make repayments difficult and ultimately reduce the CIBIL score. Hence, it is important to monitor your credit utilization regularly and avoid to much of your credit limit to increase your credit score.

Conclusion

Improving your CIBIL score before taking an education loan increases your chances of loan approval. It can also get you favourable education loan terms, such as higher loan amounts and lower interest rates. This article covers tips on how to improve the CIBIL score before taking an education loan. We have also covered the role of credit score for education loans, along with the effects of a low credit score for education loans.