With the rapidly rising cost of education both in India and abroad, it may not always be feasible or prudent to rely on your income or savings in order to give your child the education they deserve. An education loan is a stress-free means by which you can fulfil this cherished dream, without having to compromise on your own future. The first thing that a lender considers when you apply for a loan, is whether you are eligible for credit or not. This factor is determined by your credit score.

What is a credit score?

The credit score is a three-digit numeric representation of your credit history, typically ranging between 300 and 900. Assigned to an individual by a credit bureau such as TransUnion CIBIL, Experian, Equifax and CRIF High Mark – the four credit bureaus operational in India – a higher score is
indicative of sound financial health, and conveys to a lender both your ability and intention to repay a loan.

Let’s take a closer look at what credit scores indicate

A high score establishes your creditworthiness, which is likely to make a prospective lender look favourably at your education loan application. It is also important to note here, that the credit score of the student and the parent (as co-borrower, if applicable) are both important when it comes to your education loan application.A good credit score may enable you to avail better terms on your application.

Conversely, did you know that availing an education loan can have an impact on your credit score as well? Typically, an education repayment loan is the first loan a student avails, as they are on the brink of their careers. Like any other loan or credit card, your education loan too gets reported to the credit bureau and reflects on your credit report. Timely repayment, therefore, can boost your credit score. Isn’t that a great way to begin your independent financial journey!

Tips to ensure a good credit score

Here are our top five tips to help you build and maintain a robust credit score:

Make timely repayment

Nothing brings down this all-important number like delaying or missing your loan repayments or EMIs. Hence, make sure you pay on or before the due date, to have a blemish-free credit report.

Manage credit limit utilisation

Be judicious when you spend on your credit card, for maximising the limit can impact your credit score negatively. The ideal utilisation ratio should not exceed 30 percent, across all your cards.

Avoid frequent ‘hits’ or enquiries

The more enquiries against a credit report by lenders, the more it appears that the borrower is not creditworthy. This is a risk factor from a lender’s perspective, which in turn hampers your chances of availing a loan in the future.

Maintain a healthy credit mix

Ensure you have a good balance between secured and unsecured loan products in your portfolio. This again indicates to the lender whether you are creditworthy, or otherwise.

Build a credit history

While it is important to not go overboard with credit, too little credit can also prove risky. If you have zero credit history, it is difficult for a bureau to predict your repayment behaviour, which in turn can lower your score.

Working towards a credit-healthy future

With a healthy score on your credit report, your creditworthiness is built over time, thus improving your chances of being offered further credit by a lender. With a sound credit score, when you have your dream college in mind, an education loan is your first step to realise those dreams.

Use credit wisely, and work your way towards a healthy financial future.

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