How to Get Education Loan with Low CIBIL Score?

Securing loans for education abroad has been labeled as the most difficult part of the process by students, primarily due to a lack of knowledge, awareness, and exposure in the financial aspect. While students are well-prepared in areas like scores, letters of recommendation, and statements of purpose, they often lack guidance when it comes to the financial aspects. This leads to uncertainty and mistakes in loan applications, resulting in rejections. To avoid this, thorough research is crucial before applying for a loan.

One significant factor to consider is the credit score or CIBIL score. Maintaining a good CIBIL score is vital for aspiring students, as it plays a pivotal role in loan approvals. Financial institutions often look for a credit score of 750 or above, as reported by CIBIL. By understanding and prioritizing your credit score, you can enhance your chances of obtaining an education loan successfully.

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What is CIBIL score?

Every time you avail of a credit card or borrow a loan, your credit and repayment information is submitted by the respective member financial institution to CIBIL on a monthly basis. This collated data of financial data and records from leading banks and other financial institutions is then presented in the form of a credit report known as the Credit Information Report (CIR).

Through this report, banks and financial institutions can be made aware of your credit history, which may be spread across various institutions, before approving your loan.

What is CIBIL Credit Score?

The CIBIL Credit score, a summary of your entire credit history in the form of a three-digit number, is derived from the information provided in your CIR.

It normally ranges from 300 to 900 and is a representation of your credit-worthiness. A higher score indicates that you are a less risky borrower, increasing your chances of availing a loan whereas a lower score decreases that probability.

What is a Credit Report?

A credit report is a detailed record of an individual's credit history and financial activities. It is compiled by credit bureaus based on information provided by lenders, financial institutions, and other sources. It serves as a comprehensive summary of a person's creditworthiness and is used by lenders, landlords, and other entities to assess an individual's creditworthiness and financial responsibility before extending credit or entering into financial agreements.

A credit report typically includes information such as personal identification details, credit accounts (credit cards, loans, mortgages), payment history, credit utilization, credit inquiries, and public records (such as bankruptcies or tax liens).

A credit report includes information regarding the following four key areas:

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   Personal information: Name, address, PAN no, date of birth, and employment information.

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   Credit history: Types of accounts, date of account opening, credit limit, account balance, payment history.

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   Public records: Garnishments, foreclosures, legal suits, and judgments.

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   Inquiries: List of lenders that have checked the individual's credit report in the past.

How is the CIBIL Score Calculated?

Depending on the Credit Information Report (CIR) and six month’s financial data, the CIBIL algorithm calculates the CIBIL credit score based on 258 different variables each having an appropriate weight. There are mainly four factors to determine the CIBIL score:

CIBIL Score Ranges

CIBIL scores can vary from 300 to 900, with 900 indicating the highest level of creditworthiness. It is considered ideal to have a CIBIL score of 750 or above on your credit report, as it enhances your eligibility for loans and credit cards.

Factors Affecting CIBIL Score

There is a range of factors that can affect your CIBIL credit score:

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   Applicant’s repayment history - The credit score is mostly a reflection of how promptly you have repaid your debt. Any default in the credit card payment or loan repayment will negatively affect the CIBIL score.

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   Credit utilization limit - Using credit more than the credit limit also negatively affects the CIBIL score. It reflects poor spending habits.

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   Duration of using the credit - In simple terms, it means the total number of years the credit account has been open. Long and positive credit history will help the lender make a quicker decision on the credit application.

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   Paying the minimum amount due - Chances of falling into a debt trap increase exponentially if you only pay the minimum amount due every month. Interest will keep compounding on the remaining balance. Further, it reflects poorly on repayment behavior.

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   Credit mix - it is important to have a healthy mix of secured and unsecured credit. It is looked at by the lenders positively as it shows that you have experience in handling both types of credit. Furthermore, having only one type of credit can affect your credit score negatively.

Does CIBIL Score Affect Education Loans?

Statistics show that on average, 90% of the loans are granted to applicants with a score above 750. The higher the score, the higher the probability of getting your loan approved, and a study loan is no exception to this rule. Having a good credit score has its perks that include:

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   Lower rate of interest
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   Quicker approval with less documentation
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   Higher loan amount
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   Higher card limit
5. 
   Longer tenure

Thus, needless to say, when it comes to education loans, CIBIL score is a crucial factor in the loan approval process.

The majority of the students might not have taken a loan or credit card in the past and thus don’t have any credit history. In such cases, when they apply for an education loan, the lender checks the credit history of the guarantors who usually are, their parents. Thus, if the parents have a poor CIBIL score, there is a high chance that the loan can be denied.

Will taking an education loan affect your CIBIL score or not? Watch the video to know more

How to Get an Abroad Education Loan for Low CIBIL Score?

It is a little difficult to get an education loan for a low CIBIL score but fortunately not impossible. Here are some tips on how you can avail abroad education loan when you have low CIBIL score:

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   Timely repayment on current bills - Having a record of timely payments of your current bills, such as credit cards, EMIs, utility bills, etc., will help in building a good credit score, which will further help in loan approval. So, before applying for a student loan, ensure that you have paid your current bills.

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   Showing proof of income - A good income will prove to the lender that the applicant has the ability to repay the loan. Even with a bad credit score, proof of income shows that the borrower is adequately financially stable to repay the loan.

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   Apply for an education loan from NBFCs - Banks tend to scrutinize the loan application rigorously. Whereas, NBFCs might relax some policies if the student’s profile is outstanding.

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   Apply for a secured education loan - in the case of a secured education loan, credit score becomes a secondary factor. The value of the property pledged is of utmost importance. An applicant with a bad credit score can be approved for a loan if they pledge appropriate collateral.

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   Resolve credit report errors - The best method to ensure your bad credit score doesn’t ruin your chances of getting a loan is to resolve the errors. A mistake or an error in the report can also occur. Review your credit report every six months to ensure this doesn’t happen again.

What Can You Do To Prepare?

All in all, the late realization of a poor CIBIL score will only stand to hamper the process of getting the loan approved in time. In order to avoid this, you need to check your CIBIL score right away. This can be done by visiting the official website of CIBIL, paying a nominal fee, and submitting the required documentation.

Note that if your score is 0 or -1, this just means that you do not have a credit history, and getting a loan or a credit card will help you establish your credit history over time.

If you have a score >700, you are on the right track and should continue to maintain this. If you see a score lower than 700, check your credit report to see the cause of the low rating. If you believe that all your past payments were timely, and the report is erroneous, you can dispute the report with CIBIL for free. The quoted resolution time is 1 month, but can typically take ~2-3 months – so we urge you to start soon!

Read more about:

• Education loan without parental income
• Education loan for NRI applicants
• Abroad education loan interest rates
• Study abroad scholarships for Indian students
• Education loan with collateral
• NBFC education loan for abroad studies

How to Improve your CIBIL Score?

By paying your bills on time, managing your credit responsibly, monitoring your credit report, and being mindful of your financial decisions, you can gradually boost your creditworthiness. If you have a low credit score, you can take the following measures to get on the right track.

An excellent CIBIL score is imperative for getting an education loan and opening the door to your higher education in an esteemed institute. If you check your credit score and take corrective actions as mentioned above, you can improve your CIBIL score right in time and avail of your education loan easily and with low interest as well. Also, there are education financing websites like GyanDhan which are specifically meant to help students avail of education loans irrespective of their CIBIL score.

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GyanDhan provides education loan assistance for students planning their education abroad. We have partnered with leading public, private banks and NBFCs. To start your abroad education loan journey check your education loan eligibility.

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