A successful profession is built on a solid higher education. However, the price of a good education has been rising in recent years. The availability of student loans or other education loans in such situations is the only chance for regular people to afford their higher education.
Applying for an education loan is simple, regardless of whether you wish to return to school after a break from your job or pursue higher education in India or overseas. The banks and financial organizations have established criteria for eligibility for study loans and additional terms and conditions.
The reputation of the college or institute, the type of course, the student’s academic record, collateral security against the borrowed amount, income, and the credit score and credit report of the parents are some of the variables that determine your eligibility for education loans.
We’ll talk about how student loans impact your credit score today. Foremost, let’s learn everything there is to know about credit scores and credit reports.
What Does A Credit Score Mean, And How Does It Work?
A credit score, a three-digit figure with a range of 300 to 900, serves as a creditworthiness gauge. Four major credit bureaus (TransUnion CIBIL, Equifax, Experian, and CRIF Highmark) build credit scores and credit reports by gathering data from banks and other financial organizations.
Banks and other financial institutions analyze a person’s creditworthiness using their credit score. Banks are more likely to lend you money if your credit score is higher.
Do Student Loans Affect Credit Scores?
Yes, an education loan affects your credit score because it is also a debt product. Similar to other loan products like personal loans, auto loans, and mortgages, student loans and education loans will lower your credit score if payments are late or you default.
Education loans typically have a moratorium period, following which the borrower begins to repay the loan either one year after the course is completed or six months after getting a job, whichever comes first.
Immediately after you finish the course or as soon as you receive your first paycheck, you should begin making payments on your student loan. Using a loan EMI calculator, you can get an earlier estimate of your monthly installment for your student loan.
What Are The Advantages of A Student Loan To Your Credit Score?
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1. Paying Education Loan On Time Can Build Up Your Score
For most people, a student loan or education loan may be their first experience with credit. Student loans, unlike other loans, feature a moratorium period that exempts you from repayment for a while and requires you to pay interest.
However, after the moratorium, you must resume making on-time payments on your student loan EMIs. Your credit score can increase if you repay your student loan on time.
2. You Can Create A Better Credit Mix
Having a variety of loans, such as personal, auto, education, and house loans, is referred to as a credit mix. A balance of secured and unsecured loans makes up good credit.
Depending on your loan’s terms and conditions, an education loan may be secured or unsecured.
3. Helps You Build A Long Credit History
Education loans have a maximum 5- to the 10-year loan term. You can have a solid credit history if you return your student loan promptly.
A long credit history is beneficial for raising your credit score. However, you should constantly balance the benefits and drawbacks of paying off your student loan early to make the best choice.
How Does A Student Loan Affect Your Credit Score Negatively?
Even though student loans can help you improve your credit score, mishandling the loan can have a lot of unfavorable consequences. Here are a few instances of how a student loan can harm your credit score:
1. Defaulting On Education Loans Can Decrease Your Credit Score
One of the main issues that lower your creditworthiness is missing loan payments. Your credit record will be poor if you don’t repay your loan on time.
It’s never a good idea to start your innings with a negative or a red remark because an education loan can signify the beginning of your credit history.
2. It May Degrade The Credit Score of Your Co-Borrower
Parents may co-borrow education or student loans with their children. Since students do not have independent sources of income, the co-credit borrower’s score and credit report are used to determine whether to grant them an education loan (either of the parent, spouse, or sibling).
The co-credit borrower’s score also decreases when you default on your student loan.
3. Increase In Hard Enquiries
If your co-borrower has terrible credit, the bank might not approve you for an education loan. Therefore you might seek loans from other lenders instead.
The credit score of your co-borrower will be repeatedly accessed if you make too many credit requests at once. Too many simultaneous hard inquiries could reduce your co-credit borrower’s score.
Final Lines: As you take an education or a student loan for the beginning of a great career, do not make small mistakes that may spoil your career in the future. It would be best if you always were responsible for the credit you take and made timely repayments of your debts to build a credit score and credit report. Please tell your friends about this if you think it’s interesting. Go to blhsnews.com for the latest updates.