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Education is one of the stepping stones to a successful career. As with the changing times, quality education has turned more and more expensive, which might be beyond the reach of a common man. To help an individual during such circumstances, we have student loans or education loans available through most banks and other specialized education finance institutions.
An education loan can be availed to pursue higher studies either in India or abroad. It can not only be availed for education in continuity but also be availed if you are getting back to studies after working for a while.
As we are approaching the season of admissions for many foreign universities, we at CreditMantri thought it would be a good opportunity for the parents and the students to learn more about how availing a student loan and its subsequent repayment end up affecting your credit score.
For the common benefit of everyone, a Credit Score is a 3 digit number in the range of 300-900 and it is an indicator of your credit behavior in the past. Banks and other financial institutions use the credit score to gauge the creditworthiness of an individual. The more creditworthy a person is, the more willing are the banks to lend to that individual as they are taking a lower risk by lending to an individual who has more chances of paying up.
As with any other loan, a student loan or an education loan can also end up affecting your credit score in more than one way. But before checking, let us go through the main features of a student loan just for the benefit of our readers.
Additional Reading: 5 most popular education loans in India
Any form of credit that you avail can have both positive and negative effects on your credit score depending on the way you handle your credit. It is true for a student loan as well.
Very often student loan/ education loan is one of the first exposure to loan for most of the individuals. Unlike other loans, for which you have to start repayment immediately after the disbursal of the loan, student loans come with a moratorium period during which you are exempt from repayment. Only a simple interest is charged on your loan at this time.
Once you finish the period of moratorium, it is important to start paying up the loan on time. On-time repayment is one of the factors that has high impact on your credit score. A good repayment schedule can give a good start to your credit score. If for any reason, you are unable to secure a job and it is affecting your repayment, it may be good to inform your lender and discuss about an extension of the loan term. Or you could ask your co-borrower to pitch in towards the repayments for some time.
Credit Mix is the proportion of secured and unsecured loans in your portfolio. A prudent borrower is expected to have a good mix of both representing that the credit was availed not only for expenditure but was used for creation of assets. A student loan can be secured or unsecured depending upon your credit score and other factors deciding the loan.
If you have already availed a credit card or a personal loan, addition of a secured borrowing like a student loan may prove beneficial for your credit mix.
Student loans can have long tenures of up to 5-10 years. If this loan is repaid in the right earnest, then it will help the borrower build a strong credit history which is one of the important factor deciding a credit score. But if you do have an opportunity to pay off the loan earlier, you may do so after weighing in the pros and cons.
As there are positive effects on your credit scores, there are bound to be negative effects too if you fail to handle the loan responsibly.
As you must be aware, regular repayment of credit is one of the major factors that affect your credit score. A student loan is one of the initial loans that a student avails in his lifetime. Irregular repayments or defaults will go on to make a big red mark on the credit score of the borrower. You would realize it is never nice to begin your innings with a negative or a red remark.
As the student has no means of income or creditworthiness to be verified of, the student loan is generally given on the basis of the details provided by the co-borrower (either of the Parent, Spouse or a sibling ). When you default on your loan, the credit score of the co-borrower is also put at risk and may see a drop.
If your co-borrower has a not-so-good credit score, then you might not be sanctioned the loan in the first application. When you make repeated inquiries towards a loan, you end up having more and more hard inquiries which doesn't make good sense for your credit score.
As you avail a student loan for a better future and great career, do not make mistakes to spoil that career by making silly mistakes on the credit side. Always be responsible towards credit, which is the only sure shot way of having a great credit score.
A CIBIL™ score is a three digit number between 300 and 900 that gives potential lenders a quick idea of your loan
Credit repair involves rebuilding your credit health to a level where you become eligible for loans.
A CIBIL™ Score is an indicator of an individual’s credit worthiness. It impacts the individual’s ability to borrow
A credit report is a history of your credit behaviour and contains detailed information on all your loan and credit
A credit rating - also known as a credit score - is a 3 digit number between 300-900 that gives potential lenders
A bad credit score is generally one that is less than 650. A credit score is a three digit number in the range of 300-900
Yes. In fact, a credit score of 850 is very good! Most lenders look for a minimum credit score of 750 to approve loans
There are several ways in which you can improve your credit score. Depending on how good or bad your score is,
Is 800 a good credit score? Yes. In fact, a credit score of 800 is very good! Only a small percentage of people reach,
Is it possible to obtain a free credit check or credit report? The answer is yes and no!
Your CIBIL™ Score plays an important role in getting loans and credit cards sanctioned, because it gives lenders
It is not possible for anyone, either lenders or borrowers, to get a CIBIL™ score or credit report for free.
It is important to know that there is no such thing as a CIBIL™ defaulter list. There used to be a defaulter list earlier,
There is really no number that can be established as the average credit score in India. Many people see regular
You can repair your credit absolutely free if you do it yourself! However, many people choose to get professional help
First, it is important to note that there is no ‘Defaulters List’ that is maintained or circulated by CIBIL™ or any of the other
Sourav and Ankit are watching the New York Marathon on TV and decide that they want to run a marathon.
In India, the best credit score to have is one that is 750 or above. The three credit rating agencies that operate in India
Is a credit score of 700 good? While it is not a very bad score, it is not good enough to automatically qualify
It is difficult to get a loan with a credit score of 650. Most banks look for a minimum score of 750 when deciding
It is not likely that you will get a loan with a credit score of 600. Most banks look for a minimum score of 750
It is difficult to get a loan with a credit score of 550. Most banks look for a minimum score of 750 when deciding
A poor CIBIL™ score can increase your financial problems and make it difficult to access credit, whether as a loan or credit.
One common worry that runs through your mind after you have made a credit card settlement is,
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