Credit score and education: How it impacts student loans, scholarships, and more

Although a credit score is used as an assessment tool by lenders for disbursing loans, it can have its impact on an array of other areas too. For instance, a credit score casts its shadow on education, particularly on student loans.

Let us understand how it works.

Notably, credit score does not directly impact key educational elements, be it admission criteria or selection; they play an important role in raising loans for financing your studies. This is relevant for students who are pursuing their higher education in private or autonomous universities where the fee is extraordinarily high.

The impact of credit score is profound on the student loans (particularly on interest rates), with almost or ‘nil’ impact on tuition fees or scholarships.

These are the criteria based on which it impacts:

Loan approval: Banks use the credit score (also known as CIBIL  score) as an initial filter. Someone whose score is high (i.e., above 720) has high chances of approval, but someone with a lower score (i.e., below 700) is likely to face rejection. When the applicant is a young student with no credit history, banks tend to evaluate the credit history of co-applicants (parents).

Interest rates: Applicants with high credit scores (over 720) qualify for low interest rates, whereas those with low credit scores are charged high interest rates. When the score is low (between 650 to 690), applicants could be asked to provide collateral, thus adding a requirement for raising a loan.

Full settlement: When borrowers give full payment in one go, it could temporarily drop your score as it gives the impression that the loan was ‘settled’. Meanwhile, regular and timely payments help build a strong credit score for the future.

Disclaimer: MintMoney has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. MintMoney does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.