What is the Role of a Credit score in Obtaining an Education loan

What is the Role of a Credit score in Obtaining an Education loan.Availing an education loan is one of the most common ways by which students manage to fund their higher studies because tuition fees, charge of accommodation and other expenses may be very unrealistic. Thus, depending on the educational loan, the factors which determine credit approval include, but are not limited to, the credit score of the applicant (and/or co-applicant).

In the following blog, you will learn about how credit score determines education loan, terms & conditions related to the education loan, and measures to follow for improving credit score.

Understanding Credit Score

A credit score is a simple three digit number which gives an estimate of the ability to pay back borrowed funds. This score depends with the past conduct of a credit holder involving his/her repaying capacity of loans, credit card balances and the like. It normally goes up to 900, anything above that usually going to have better credit rating.

Why Credit Score Is Important For Education Loan

Again the students, who apply education loans, normally do not have long credit history because they form the early group of credit scorers. Hence to overcome this problem, make lenders consider the credit score of the student’s co-applicant normally being the parent or the guardian of the student. In case of availment of co-applicant the score of the co-applicant is used in determining the loan application.

In the case of co-applicant, good credit history will help the applicant since the co-applicant is also credit worthy since he/she will have a good record in repaying the loan on time. S renders the education loan less risky for the lender to extend because he is confident that the student will be able to repay it after completing his/her education or during the repayment period the co-applicant will be in a position to repay the loan.

Effect of Credit Score on Education Loan Sanction

Education Loan approval or rejuection are mainly based on the credit score of the co-applicant. Here’s how different credit score ranges affect loan approval chances:

1. Good Credit Score (690 to 749)

Higher chances of loan approval: While a credit rating of over 750 is perfect. Such applicants are deemed to be low risk to the lenders, underwriting of the loan practically becomes a mere formality.
Better loan terms: Lenders will agree to provide credit at attractive terms if the borrower has high credit scores. Furthermore, those seeking to borrow money online have good credit ratings, and can be granted larger loans, thereby enabling one to fully finance his/her education.
Faster approval process: When an applicant has a good credit standing, the process or getting the loan is much easier and faster as the lenders don’t consider the applicant to be a high risk.
2. Good Credit Score (650–749)

Likely approval: This is a good range for Credit Score and this examiner is quite sure that most of the lenders will be willing to forward the loan application.
Reasonable interest rates: Of course, the market offers less beneficial terms than those granted to people with an excellent credit score but applicants can still count on reasonable interest rates and large enough loan amounts.
Negotiation potential: In this case, there are times that the applicants can request the lenders to specify the loan tenure and the repayment period if he/she had a high rating in credit score.
3. Fair Credit Score (550–649)

Moderate chances of approval: This credit score range is more risky to the lending companies, thus, getting approval is quite difficult though not totally out of the question.
Higher interest rates: If granted, the loan may attract high interest rate to help meet the perceived risk of the lending company. This can also lead to an uplift in the cost of the loan.
Collateral requirement: With regard to fair credit scores, most lenders may ask the applicants to use their properties or savings as security for the loan.
4. Poor Credit Score (below 550)

Low chances of approval: Any credit score below passing standard makes it almost impossible to get an education loan. Lenders such as banks and other creditors always find a way of shunning individuals who have scored below 550 for they would classify them as bad risks who are most likely to fail to meet their obligations in the manner which has been prescribed.
Stringent terms: When granted, the loan may be so expensive, with very high interest rates, short grace periods and in some cases security.
Co-applicant requirements: At times, for greater assurance to the lender, the additional co-applicant with a better record in credit scores can be required.

What is the Role of a Credit score in Obtaining an Education loan

What is the Role of a Credit score in Obtaining an Education loan

 

Tips to Help You Get the Education Loan You Deserve

If the credit score obtained by the applicant and/or the co-applicant is low then there are a number of things that one can do in order to boost the score in the credit reference list in a bid to increase the chances for having the loan granted to him/her. Here’s how:

Pay off existing debts: With respect to credit score, Coan noted that paying off certain bills can be an effective way of getting the credit score right. This generally has impacts on the scores in a positive manner for your co-applicant if they have recent loan or dues on credit cards.

Make timely payments: Make sure that every invoice on a loan or credit must be paid within the agreed time. This means that; Credit Score is adversely affected by late payments.

Reduce credit card utilization: The fact is that, excessive use of credit cards in terms of credit limit pull down the credit scores of people. The ideal scenario is when the utilization takes a low value so that one’s credit score is good.

Avoid applying for multiple loans: Whatever loan application or credit inquiry you make is noted in your credit history. It is correct not to apply for credit frequently as this will affect credit score of the applicant negatively.

Maintain a good credit mix: Credit scores will be enhanced by the right mix between secured credit such as the home loan, and unsecured credit such as the personal loan.

Check for errors in the credit report: At other times, items in the credit report that are negative, discrepancy or records that are old bring down the scores. Some of the most efficient strategies for Consumer to increase the credit score is Through Credit Audit in which the Consumer analyze the credit report frequently in order to query any possibly fraudulent entries.

There are other factors, which may affect the approval of education loan as indicated below:

However, credit score is not the only requirement that is used in the approval of the education loan. Lenders also take into account:

Academic performance: The loan approvals rate vary with a student’s performance in school; students with better grades, or those who are applying for reputable institutions have higher chances of having their loan request approved as lenders believe that the student’s chances of getting a good job once they graduate is high.

Type of course and institution: Some lenders tend to give loans based on particular courses such as engineering, medical and management courses. They also factor the ranking and accreditation of the institution through which the student is to pursue studies.

Repayment capacity: Thus the lenders get assess of the repayment capacity of both the student and the co-applicant. This include aspects like the expected salary after completion of course, the income of the co-applicant and other expenses.

Collateral: There are times when the amount of the loan that is to be borrowed is large, or when the credit rating of the borrower is low, the money-lender demands that a security be put up for the loan. This could include business and/or farm or ranching and/or house and/or car and/or cash and/or fixed deposits and/or others.

Conclusion

Having a good credit score is very important when it comes to education loans as it determine terms which the borrower can get and duration of processing of the loan. But, of course, the student’s ability to pay back the loan as well as the chosen course play a prominent role, although the co-applicant’s credit score is the clinching factor. Once the appropriateness of credit scores and the need for improvements to get improve chances of getting an education loan with the suitable terms is understood by the applicants, then there are high chances of achieving a better result.

For students and co-applicants, credit score is not just during the time of getting an education loan but an important factor to have a healthy financial life in the future.

 

• Can Education Loan be Transferred to a Different Lenders for Better terms
• The Benefits of Early Repayment for Education Loans
• Can Parents or Guardians take out Education Loans on Behalf of Students
• Special Education Loan Options for Graduate or Professional Studies
• Can I Avail of any Interest Rate Discounts or Benefits while Repaying My Education Loan
• How does the Interest Rate Affect the Overall Cost of An Education Loan
• Can Education Loan Cover Expenses Like Accommodation And Transportation
• Can I Consolidate Multiple Education Loans Into a Single Repayment Plan