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All You Need to Know About CIBIL Score and How it Helps in Getting Education Loan?

Updated On - October 10th 2019 By - Vartika Pahuja

All You Need to Know About CIBIL Score and How it Helps in Getting Education Loan?

Nowadays, most of the students are looking forward to an education loan in order to fund their education. The process of getting an education loan has also become very simple and hassle-free in recent years. Moreover, the banks offer education loans at a very low rate of interest. However, all of this is subjected to one condition that you have a good CIBIL (credit score) rating.

Most of the public and private sector banks like SBI, HDFC, and ICICI refer to the customer’s CIBIL Score in order the check his/her credit history. As per the reports, 90% of the loans are granted to the applicants having a CIBIL score above 750. This shows that if you have a higher CIBIL Score, then the probability of getting an education loan is higher.

What is CIBIL?

CIBIL stands for Credit Information Bureau (India) Ltd. It is an agency that provides credit scores as well as records to the lender, thereby allowing the lender to assess the borrower, whether he/she would be able to repay the loan or not. 

CIBIL records all your information including credit card payments, EMIs, outstanding balances and all other information regarding credit profile. On the basis of all the information gathered, the credit score is calculated and it ranges from 300-900.  A high score indicates that you can easily avail the loan, whereas a low score means your chances of getting a loan are low. 

  • If your CIBIL score is less than 600, then the probability of getting a loan is very less. 
  • If your CIBIL score is between 600-750, then some lenders might agree to give you a loan. But all of this will depend on your ability to repay the loan.
  • If your CIBIL score is greater than 750, then your chances of getting a loan are very high. Your loan will probably get approved very early and the interest rate can also be negotiated here because of your good credit profile.

Calculation of CIBIL Score

There are around 258 different variables each having some weightage, on the basis of which CIBIL credit score is calculated. The data for evaluation will be taken from the CIR (Credit Information Report) and six month’s historical financial data of the borrower.

The factors which affect the CIBIL Score are:

  • Credit Mix: It basically refers to all the different types of accounts that make up to a consumer’s credit report.
  • Duration of time for which the customer is using the credit.
  • Credit Balance
  • Multiple Loan Applications: It checks whether there is any other loan that is taken or applied by you in the past. Multiple loan applications will indicate that your dept is higher and it may be difficult for you to service your debt obligations in the future.
  • Repayment history of the applicant.

Benefits of CIBIL Score in Education Loan

If you have a higher CIBIL Credit score then there will be so many benefits associated with it like:

  • The rate of interest is negotiable and it will be comparatively low.
  • The whole procedure will require less documentation and the approval will take very little time.
  • The loan amount, as well as the card limit, will be higher.
  • The tenure will also be longer.

Thus, the CIBIL credit score is highly beneficial when it comes to education loan approval. And if you repay your loan on time, then this will also help you in building a good credit score.

Students are more likely to have no credit history as they have just started. So, in that case, their parents will act as a guarantor and their credit history will be checked. On the basis of that, CIBIL credit score will be calculated and the student will be given the education loan. If the loan amount is less than INR 4 Lakhs, then the parent will act as a joint applicant and if a student is having a credit line and the loan amount is greater than INR 5 Lakhs, then a CIBIL score of 750 or above will be required.

Measures to Improve CIBIL Score

  • Be aware of your CIBIL score and check it regularly.
  • Always pay the installments on time and clear the dues early.
  • Avoid being a guarantor to a less creditworthy individual.
  • Make sure to never utilize the maximum credit card limit. 40-50% usage is the ideal one.
  • If your CIBIL score is low, then go for a collateral loan.
  • Do not apply for a large number of credit cards or loans in a short duration of time. 

An excellent CIBIL score is imperative if you are looking to get an education loan. In case you have a low CIBIL score, start working on improving it by taking proper measures.