Financing higher education is often seen as a stepping stone to a better future. But what if your credit score isn’t where you’d like it to be? For many aspiring students and their families, a low credit score may seem like a major obstacle when seeking financial support for studies in India or abroad. However, there are still viable ways to secure an education loan, even with a less-than-ideal credit profile. This article explores the various options available to education loan seekers with low credit scores, how much credit score is required for an education loan and how you can improve your chances of getting approved.
What Role Does Credit Score Play in Education Loan Approval?
Your credit score is a numerical reflection of your creditworthiness. In simple terms, it tells lenders how likely you are to repay borrowed money. While most students don’t have a long credit history, the co-applicant’s score becomes a critical factor during the assessment process. Lenders also evaluate your academic performance, the course you're applying for, and the institution's reputation to estimate your future earning potential.
A higher credit score generally improves your chances of getting approved with favourable terms. On the other hand, a low or no credit score doesn’t always mean rejection; it simply means you may need to provide additional support, such as collateral or a strong co-borrower.
Understanding Credit Scores
The credit score, ranging from 300 to 900, reflects an individual's creditworthiness. While a score above 700 is generally preferred by lenders, students often have little to no credit history. In such cases, lenders focus more on the co-applicant's (usually a parent or guardian) credit profile and the student's academic background.
Here's a breakdown of credit score ranges and their implications:
| Credit Score Range | Creditworthiness | Implications for Education Loan |
|---|---|---|
| 800 – 850 | Excellent | High approval chances with favourable terms |
| 740 – 799 | Very Good | Likely approval with good terms |
| 670 – 739 | Good | Possible approval; terms may vary |
| 580 – 669 | Fair | Approval is possible with conditions |
| 300 – 579 | Poor | Low approval chances; may require collateral or a strong co-applicant |
| NA/NH | No History | Lenders assess based on the co-applicant's profile and academic records |
How to Improve Your Credit Score
Below are some tips that may help you improve your credit score.
- Timely Repayments: Ensure all credit card bills and EMIs are paid on time.
- Limit Credit Applications: Avoid multiple loan or credit card applications in a short period.
- Monitor Credit Reports: Regularly check your credit report for inaccuracies and rectify them promptly.
- Maintain Low Credit Utilisation: Keep your credit card balances low relative to your credit limits, ideally less than 30%. For example, if your credit card limit is ₹1,00,000, try to keep your monthly usage below ₹30,000.
Conclusion
Getting an education loan with a low credit score can feel tough, but there are ways to improve your chances. Understanding how much credit score is required for an education loan, having a co-applicant, choosing a secured loan, and applying for career-focused courses from good institutions can all make a big difference. If you’re planning to take an education loan for abroad studies, Credila offers education loans with flexible repayment options, making it easier for students to access financing with flexible repayment options. With the right support and planning, you can move one step closer to your academic goals.
Disclaimer
As of March 31, 2024. T&C apply.
Credila Financial Services Limited (Formerly known as HDFC Credila Financial Services Limited)
The education loan facility provided by Credila Financial Services Limited ('The Company') will be at the sole discretion of the Company and within the Company's prescribed credit and underwriting norms/guidelines prevailing at the time of processing and disbursing the education loan. The Company maintains the right to change the interest rate at any time and at its sole discretion, without prior notice.
