Education Loan CIBIL score

Getting a loan for studying abroad is often the trickiest part for students due to limited knowledge in financial matters. While students focus on grades and application materials, they lack guidance on the financial side, leading to mistakes and rejections. Thorough research is essential to avoid these issues. A crucial aspect is the credit score, with a CIBIL score of 750 or higher being preferred by financial institutions. Maintaining a good credit score significantly improves your chances of securing an education loan successfully. If you’re looking for an education loan with a low CIBIL score, it’s essential to understand and prioritise improving your credit score to enhance your approval chances.

What Is A CIBIL Score?

CIBIL (Credit Information Bureau India Limited) is India’s first Credit Information Company. All banks and financial institutions in the country are required to send an individual’s credit card and loan history to CIBIL each month. They then gather and preserve the Credit Information Report (CIR) to generate a credit score.

CIBIL Credit Score or education loan score is a three-digit number that can have any value between 300 and 900. This value is measured on the basis of the data in the CIR of an individual and is a measure of his or her creditworthiness. During the loan appraisal process, the lenders use this ranking. A higher score shows that the person is more likely to repay the loan on time, thus raising the chances of getting the loan. A lower ranking, on the other hand, decreases the chances of getting the loan. Getting an education loan with a low CIBIL score is tricky but not impossible.

How Is The CIBIL Score Calculated?

From the moment their accounts are operational, CIBIL records the financial information of all individuals keeping a PAN card or a savings account with any bank operating in India. Both credit card purchases and online cash transactions carried out by these individuals also contain this. It is often shown that the education loan CIBIL score of individuals who do not hold a credit card or those who have one but have never used it for any of their purchases is negative or their score is shown to be zero. This is considered a very good consideration by most banks when they take the score of the loan applicants for any form of loan.

CIBIL ratings are between 300 and a high of 900. The higher the CIBIL ranking, the better your chances of getting a loan for education are and vice versa- the lower the ranking, the more difficult it is to get a loan for a low score. There are four factors of determination a student should keep in mind: 

Parameters	Explanation
Repayment Track Record	Consistency and timeliness of previous EMI payments.
Loan Variety	Various types of loans (secured or unsecured) obtained previously.
Credit Utilisation	Effective use of credit limit on credit cards or other lines of credit.
Multiple Concurrent Loans	Frequency of loan applications or approvals within a brief timeframe.

Importance Of A CIBIL Score For An Education Loan

When applying for an education loan, the lender assesses the CIBIL scores of both students and their co-borrowers. While a student’s score can impact the loan outcome, if the student has no CIBIL score, the lender considers the co-borrowers CIBIL score to determine the loan terms. A favourable score, combined with meeting other eligibility criteria set by the lender, increases the chances of a student obtaining the loan. These are some of the other parameters which students can get if they have a good CIBIL score: 

Loan Approval: Lenders use your CIBIL score (usually 750 or above) to determine if you’re a reliable borrower. A higher score increases your chances of loan approval or even help you get a pre-approved education loan.

Interest Rates: A good credit score often means lower interest rates. Lenders see you as less risky, offering you better terms on the loan.

Loan Amount: Your CIBIL score influences the sanctioned loan amount. A higher score may result in a larger loan, ensuring you have enough for tuition and expenses.

Faster Processing: A positive credit history speeds up the loan approval process, crucial during time-sensitive admission periods.

Negotiation Power: A strong CIBIL score gives you better negotiation leverage. You can discuss terms with the lender for more favorable conditions.

Co-Signer Requirement: A higher CIBIL score may reduce or eliminate the need for a co-signer, as lenders trust your ability to repay the education loan.

Minimum CIBIL Score Required for Student Loan

The CIBIL score of the borrower and their co-applicants is one of the most significant factors considered by NBFCs and private banks before approving any education loan application. Most NBFCs that operate in India need a CIBIL score above 700 for loan applicants and their co-applicants. If you wish to borrow overseas education loans, check your CIBIL Credit score limits as follows: 

CIBIL Scores	Reasoning
300-599	Most financial institutions view scores below 600 as poor, making it challenging to secure an education loan due to perceived higher risk.
600-749	While individuals in this range can still get an education loan, banks and NBFCs are stringent, considering the high percentage of education loans turning into NPAs.
750 & above	A CIBIL score of 750 and above indicates a healthy financial record. Individuals with such scores face no trouble obtaining an overseas education loan, and it helps lenders assess their reliability.

Does Education Loan Affect My CIBIL Score?

Indeed, your education loan can significantly influence your CIBIL score, similar to any other loan. It is essential to repay the loan in order to maintain a favourable score. However, the key distinction here is that education loans can often be repaid once the borrower completes their education and secures employment.

Furthermore, similar to other loans, education loans are reported to CIBIL and are reflected in your credit report. Your repayment behaviour plays a crucial role in determining whether this has a positive or negative impact on your credit score. It is important to note that non-repayment of an education loan can have adverse consequences on your credit score here’s how- 

Credit Inquiry Impact: When you apply for an education loan, the lender conducts a hard inquiry on your credit report. While a single inquiry may have a minor impact, numerous inquiries within a short period can slightly lower your credit score.

Repayment Behaviour: Your CIBIL score is significantly influenced by your repayment behaviour. Timely payments on your education loan will have a positive impact on your credit score. On the flip side, missing payments or defaulting can severely harm your credit score.

Credit Utilisation: Education loans contribute to your overall credit utilisation, which is the ratio of your current credit balances to your credit limits. High credit utilisation can negatively affect your credit score. It’s essential to manage your credit responsibly to avoid adverse effects on your CIBIL score.  

What Factors Affect CIBIL Score? 

Several factors influence a CIBIL score, determining an individual’s creditworthiness. It’s important to note that the weightage of these factors may vary, and the specific scoring model used by credit bureaus can differ. Here are the key factors that impact the CIBIL score: 

Payment History: The most significant factor is the individual’s repayment behavior. Timely payment of credit card bills, loan EMIs, and other credit obligations positively affects the score. Late payments, defaults, or settled accounts have a negative impact.

Credit Utilisation: This factor considers the ratio of the individual’s credit card balances to their credit limits. Higher credit utilisation can have a negative effect on the score.

Length of Credit History: The duration of the individual’s credit history is considered. A longer credit history can contribute positively to the score, demonstrating a more extended period of responsible credit usage.

Types of Credit: A mix of different types of credit, such as credit cards, installment loans, and retail accounts, can positively impact the score. It showcases the ability to manage various credit responsibilities.

Recent Credit Activity: Recent credit inquiries and new credit accounts opened within a short period can have a slight negative impact. Multiple recent inquiries may be seen as a sign of financial stress.

Public Records: Negative public records, such as bankruptcies, tax liens, or court judgments, significantly impact the CIBIL score.

Number of Credit Accounts: The total number of credit accounts, including both open and closed accounts, can influence the score. Too many open accounts might be considered a higher risk.

Settlements and Defaults: Instances of settling accounts for less than the full amount or defaults on loans negatively impact the CIBIL score.

What Is A Credit Report? 

A credit report is a detailed record of an individual’s credit history and financial behavior. It is compiled and maintained by credit bureaus, which are agencies that collect and analyze credit information. The credit report provides a comprehensive overview of an individual’s creditworthiness and is used by lenders, banks, and financial institutions to assess the risk associated with extending credit or loans. Key components of a credit report include:

Personal Information: This section includes details such as the individual’s name, address, date of birth, and contact information.

Credit Accounts: Information about various credit accounts, including credit cards, loans, mortgages, and other types of credit. This section outlines the credit limit, outstanding balance, and payment history for each account.

Payment History: A record of the individual’s payment behavior, including details on whether payments were made on time, any late payments, defaults, or settlements.

Credit Inquiries: A list of inquiries made by lenders when the individual applies for new credit. Multiple recent inquiries can impact the credit score.

Public Records: Any public records related to the individual’s financial history, such as bankruptcies, tax liens, or court judgments.

Credit Score: The credit report often includes a credit score, which is a numerical representation of an individual’s creditworthiness. This score is based on the information in the credit report. 

Tips For Improving Your CIBIL Score

Improving your CIBIL score is a gradual process, and consistency in adopting good financial habits is key. It may take some time for positive changes to reflect in your credit score, so be patient and persistent in your efforts. Improving your CIBIL score is essential for better financial health and increased access to credit. Here are some ways to improve your CIBIL score:

• Ensure timely payments for all credit obligations, including credit cards, loans, and utility bills.
• Keep credit card balances low in proportion to your credit limit. High credit utilisation can negatively impact your score.
• Maintain a mix of credit types, such as credit cards, installment loans, and retail accounts, to demonstrate responsible credit management.
• Limit the number of credit applications within a short period. Multiple inquiries can have a negative impact on your score.
• Monitor your credit report regularly to identify and rectify any errors. Report discrepancies to the credit bureau for correction.
• Address any outstanding dues or defaults. Negotiate settlements with lenders if needed, but ensure to update your credit report accordingly.
• A longer and positive credit history is favourable. Avoid closing old credit accounts, as it can shorten your credit history.
• While credit cards are useful, try not to rely heavily on them. Strive to use them responsibly and avoid maxing out your credit limit.
• Create a budget and financial plan to manage your expenses and debt. This can help you make informed decisions about credit usage.

Tips to get a loan with a low CIBIL Score

Getting an education loan without a CIBIL score or for individuals with a history of CIBIL default can be challenging. The CIBIL score is a significant factor that lenders consider to assess the creditworthiness of an individual. However, in certain cases, there are alternative options or specialised lenders that may consider providing education loans for CIBIL defaulters under specific conditions:

1. Show timely repayment records on current bills

CIBIL score depends on repaying the current debts in a timely manner. Ensure having a record of timely payments on all unpaid debts, such as credit cards, EMIs, and utility bills, before applying for a loan. This will help in building a higher credit score and improve the chances of approval so you can avoid getting rejected on your student loan with bad credit score.

2. Present proof of income to sustain the ability to repay loans

Other variables, such as current salary or income streams, are considered by most lenders, along with credit score. Someone with a poor credit rating will also provide evidence of an increase in salaries, annual bonuses, or other additional sources of income in bank statements. This proves that the person is adequately financially stable to repay the loan on time.

3. Request for a loan from the NBFC

It is best not to apply for a loan from a bank because each assessment of the loan application is accompanied by the review of the credit report that results in hard investigations when someone has a bad credit score. Since they tend to have more relaxed policies against clients with poor credit ratings, it’s easier to apply for a loan from an NBFC. A significant thing to remember here, however, is that the interest rate paid by NBFCs is higher.

4. Opt for a low sum for personal loans

The lender may consider an individual as a risky client if he borrows a huge amount of money with a low credit score. So to produce a better credit score, he should opt for a lower sum and repay it annually. This will gain the trust of the lender in his creditworthiness, and he can go back for a higher sum of the loan. . Repayment of a smaller amount would also be easier on the wallet, lessening the struggles of getting a student loan with low CIBIL score.

5. Get a guarantor or request a joint loan

Even if someone has a low education loan CIBIL score or is new to credit, with a co-applicant or a guarantor, he will get approved for a loan quicker. The lender would be more likely to assist with a better offer on the loan sum if the guarantor has a decent credit history and a high credit score.

6. Request a Secured Loan

Another simple way to guarantee the loan repayment is to apply against any collateral, which may be collateral such as gold or private property/other valuable properties. When applying for a mortgage-backed loan, there are several banks and financial institutions that readily offer loans to low credit score holders. In general, properties such as land, gold, fixed deposits, etc., are approved by lenders as collateral to disburse a secured loan even to low CIBIL score applicants.

7. Resolving Credit Report Errors

There are also real instances where mistakes or misreporting on the credit report have occurred. Keep the education loan CIBIL score reviewed once every six months to ensure that such errors do not occur and that the credit report is revised so that you don’t have to get a loan for a low CIBIL score.We hope this article helped you to understand how to go about seeking an education loan with low CIBIL score.

Do reach out to UniCreds in order to understand the CIBIL score criteria and also to know if your profile will be deemed suitable for an education loan. Given the daunting nature of their profile, our financial officers have helped several candidates get an education loan and we will be able to do the same in your case too, even if you are seeking an education loan with a low CIBIL score.

Reasons For A Low CIBIL Score

• Failing to make loan payments on time or experiencing delays in paying EMIs can significantly reduce your credit score.
• Having excessive unsecured loans, such as credit cards or personal loans, can have a negative impact on your credit score.
• Utilising credit beyond the assigned credit limit and reaching the maximum credit utilisation ratio can lower your credit score.
• Applying for numerous credit cards or loans within a short period can also have a detrimental effect on your credit score.

FAQs

Q1. Is your CIBIL score required for a student loan?

Ans: The CIBIL score of an applicant and their co-applicants is one of the most significant aspects considered by NBFCs and private banks prior to actually approving any education loan application. The majority of NBFCs in India require loan applicants and co-applicants to have a CIBIL score of at least 700.

Q2. What is the minimum CIBIL score for an education loan?

Ans: The score can range between 1 and 999. However, the ideal CIBIL score for obtaining an education is 750 or higher. Loan approval would be difficult for applicants with a CIBIL score of less than 600.

Q3. Can I get an education loan from NBFC with a low CIBIL score? 

Ans: Securing an education loan from an NBFC with a low CIBIL score may be possible, but it could lead to higher interest rates and stricter terms due to the increased perceived risk. It’s advisable to explore options, such as providing collateral or a co-signer, to enhance loan approval chances.

Q4. How long is a CIBIL score report valid?

Ans: A CIBIL score report does not have a specific expiration date, and the score remains valid as long as it reflects the individual’s recent credit history. However, for the most accurate representation, it’s recommended to check and update your credit score regularly, especially before applying for new credit or loans.

Q5. How to check the CIBIL score for an education loan?

Ans: To check your CIBIL score for an education loan, register on the official website of CIBIL. This enables easy access to your credit score, providing valuable information for your loan application.

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