Several factors determine your eligibility to get an education loan to fund your higher studies- in India or abroad. A major determinant will be your creditworthiness and ability to repay the loan. And this is reflected in your CIBIL score and CIBIL report. Just like in any other loan application, your CIBIL score is taken into consideration by the lenders as they review your education loan applications. Lenders examine your financial reliability to evaluate your capability to repay your education loan.

If you're planning for an education loan then knowing about the CIBIL scores beforehand can help you immensely. The CIBIL scores of yourself and your co-applicant can determine whether your loan application will be accepted or rejected. 

But what is CIBIL? How do CIBIL scores get calculated? Does taking an education loan affect the CIBIL score? Read on to find out the answers to these questions and how one can improve their low CIBIL score.

What is CIBIL?

CIBIL (Credit Information Bureau India Limited) is a third-party private organization, an American multinational group operating in India. CIBIL maintains all the records sent by the banks and financial institutions in India of all those who have ever taken any loan or even made inquiries about one, and when needed, it provides this information to the bank. 

How is the CIBIL score calculated?

Whenever you approach a bank or any financial institution for any kind of loan, it could be your education loan, home loan, credit card, etc, then that lender asks for your CIR (Credit Information Report) from CIBIL which is your personalized credit history. Based on your past credit history, CIBIL gives you a score ranging between 300-900. A score closer to 900 is considered to be a good score and vice versa. A CIBIL score of those who have yet not taken any loan will always show in negative one or Zero, which is nothing to be concerned about. 

There are mainly four main factors that determine a CIBIL Score:

  • Repayment history - Your consistency of paying earlier EMIs, how regular you were with them, and so on.
  • A mix of loans - In the past, the type of loans you've taken (Secured or Unsecured)
  • Credit limit - Utilization of the credit limit of your credit card or any credit line.
  • Multiple loans at a time -  If have you taken or applied for too many loans in a short period.

 

Importance of CIBIL score while taking an education loan:

CIBIL score is one of the primary screening factors for lenders to check the applicant's creditworthiness. The importance of CIBIL increases in the case of an unsecured education loan. Private banks and NBFCs are particular about both your and your co-applicants' CIBIL scores as they offer unsecured education loans and need assurances about repayment, unlike in a secured loan, where lenders have collateral in the event of a default.

For an education loan, a CIBIL score can make a difference, having a good CIBIL score along with having cleared other eligibility parameters can ensure you get: 

  • Lower rate of interest for your education loan
  • Quicker approval from the lender
  • Higher education loan amount
  • Higher credit limit
  • Longer tenure

What is the minimum required CIBIL score for an education loan?

Generally, while taking an education loan CIBIL score required is a minimum of 685, but government banks sometimes accept lesser CIBIL scores if it is low because of some not-so-serious reasons such as credit card-related issues. Private banks and NBFCs are less flexible on CIBIL issues generally. Keep in mind, that getting an unsecured education loan with a relatively low CIBIL score comes with a higher rate of interest, as the higher the risk for banks, the higher the return they want for themselves. 

Banks will never accept your loan application if some serious issues are detected in the CIBIL report such as loan write-off/ loan waive-off, loan settled, or cheque bounces.

When you visit any bank or NBFC on your own for your education loan with a low CIBIL score, chances are they will refuse without considering the reason behind the low CIBIL score which will further lessen your CIBIL score. 

Instead of going directly to the bank, go through WeMakeScholars, an organization funded and supported by the Ministry of IT, Government of India, as the financial officer assigned to you assesses your and your co-applicants' profile and tells you beforehand if there is an issue and will give you a solution to avoid the impediment.

For example, say you visit a bank/NBFC for an unsecured education loan with your father as your co-applicant whose CIBIL score is low, banks/NBFC most probably will refuse your education loan. Now, when you apply via WeMakeScholars, your assigned financial officer will tell you ahead of time that your father's CIBIL score for an education loan is low and can tell you to add someone else as your financial co-applicant who would be accepted by a bank or NBFC. It would not only safeguard you from your loan rejection but also save your time and CIBIL score from lessening. We can also talk to banks to consider the low CIBIL score wherever it is possible. 

Does my CIBIL score affect my education loan?

Of course, it does. CIBIL score is the most important parameter considered to give you an education loan; especially in an unsecured loan. Having a higher CIBIL score means you will be given more loan amounts. Public and private banks have certain CIBIL score requirements. If your CIBIL score is not up to the mark with their limits, getting an education loan might be difficult. Let us take a look at the CIBIL score limits of certain lenders.

Government Banks:

  • SBI requires a CIBIL score of 591 for secured loans and 685 for unsecured loans. (Via Vidyaloans). This is the lowest CIBIL score requirement out of all lenders.
  • Bank Of Baroda requires 685. 

Private Banks and NBFCs:

  • Private banks and NBFCs are very particular about parents' and co-applicants’ CIBIL scores because they mostly tend to give out collateral-free loans.
  • The minimum required CIBIL is 685. 
  • Private banks and NBFCs sometimes accept low CIBIL scores if it is caused by not-so-serious reasons like credit card issues. 

Vidyaloans:  A score of 685 is required. 

If any serious issues are found in the CIBIL report, such as a Loan written off, Loan settled, or Cheque bounces, lenders will not consider giving you a student loan. So make sure your CIBIL report is free of such issues.

In government banks, deviation can be taken for such issues if the amount written off is less than 50 thousand rupees.

Does an education loan affect my CIBIL score?

Yes, and not just only yours but also of your co-applicants. When you take an education loan, it immediately doesn't affect either of your CIBIL scores, it reduces or improves as your repayment period starts. Non-repayment or delay in paying EMIs of your education loans will result in a reduction of your credit score and vice versa. 

Reasons for low CIBIL score and tips to improve it:

Reasons for a low CIBIL score:
  • Defaulting on previous loan payments or delay in paying EMIs can drastically lessen credit scores.
  • Taking too many and only unsecured loans (credit cards, personal loans) can also negatively affect the credit score.
  • Using credit more than the credit limit and maxing out oneself also lowers the credit score.
  • Applying for too many credit cards or loans in a short period also negatively affects the credit score.

 

How to improve a low CIBIL score:
  • Avoid taking too many credit cards and loans
  • Clear all your outstanding dues.
  • Pay all your dues on time and in full when you get your credit card statement. Instead of paying just the minimum amount due, pay the full amount.
  • Never miss any of your EMIs. Do ECS (Electronic Clearing System) on it. That way you can eliminate the chances of forgetting monthly payments of EMIs.

 

How to get an education loan with a low CIBIL score?

When, for an education loan CIBIL score is considered low, the best option is to go for secured education loans from public banks. When you mortgage your collateral which could be a house, flat, non-agricultural land, fixed deposits, insurance policies (Term policies), and government bonds, the lender gives you a loan based on the value of your mortgaged collateral. 

Don't get me wrong, lenders still check your and your co-applicant’s credit score, but paired with collateral, a low credit score can be considered for an education loan given that the CIBIL report shouldn't reflect any serious issues. 

But let me remind you once again that there are high chances, banks may refuse to give you a loan because of a low credit score without giving any consideration which otherwise would have been considered had you applied via WeMakeScholars.We have handled over 1 lac education loan applications and have come across every issue possible that a student would face concerning a credit score problem, not every issue is resolvable but with our experience and knowledge, we can maximize a student’s chance of securing funds even with a low CIBIL score. Do reach out to us by requesting a callback.