CIBIL Credit Report Problems


Will Education Loan Affect Cibil? 2018

The non-repayment or delay in payment of education loan will affect your CIBIL credit score. The education loans have to be paid once one completes his/her course and gains employment [sic]. Also, like any other loans and credit cards, education loans are also reported to CIBIL and get reflected in the borrower's CIBIL Report and impact the CIBIL Trans Union Score.

Generally, students availing an education loan have no credit scoring. In this case, the bank looks at the credit history of the co-borrower (can be the parent or the guardian) who signs the loan application as a guarantor. Education loan providers who are specialising in this particular sector have their own credit reporting system that takes the CIBIL score along with many other factors (the type of degree, university or college, the location of the education centre and so on) into account.

If there is defaults on you Education Loan it will impact your credit history and your credit score. You may improve your credit history by repaying the education loan prior to applying for a home loan. Build a positive history and your CIBIL TransUnion Score will improve gradually over a period of time.

What Factors Influence The Cibil Score?

The most important factor that influences the credit score is the repayment history of the consumer (constitutes almost 35% of the credit score). Other factors that interfere with the credit score are the credit balance of the consumer, number of loans, number of credit cards held by the consumer, the balance between secured (housing loans, business loans and so on)and unsecured loans (personal loan) and so on.

Top Priority For Education Loans

The RBI has included education loans as part of the priority sector lending of banks. It aims to provide need-based finance to meritorious students. But students should bear in mind that educational loan is like any other commercial credit, and it is at the bank’s discretion to sanction a loan after assessing ‘credit worthiness’ of the borrower. This entails that students should be well prepared for commercial negotiations by doing their homework well on how to repay the credit through earnings from job.

Your “Credit Worthiness” 

Students generally don’t have any credit history and their credit worthiness is presumed for granting education loans. But banks insist that parents who are joint borrowers should also have a clear credit history. In case parents have an adverse credit history, the bank may insist on having joint borrowers, other than parents, on which they can rely.

Paying It Back

Repayment of education loan is generally in the form of EMI. Student should compare their EMI with likely salary. They can determine their EMI amount for different combinations of interest rates and tenure by using the EMI calculator available online. According to experts, it’s desirable that the EMI should not exceed 50 percent of one’s likely salary. It may happen that students are not able to repay loans if salary is less than expected. In such cases, students may request banks to reschedule their loans.

In some careers, it is observed that salary levels initially are low. Telescoping of repayment with stepped up instalments with the passage of time is considered in such cases by banks on request. No prepayment charges are generally levied by public sector banks in case of early settlement of loan. The new scheme has extended the loan tenure (see box) which is likely to facilitate lower EMI repayment.

What would happen if I don't repay my education loan?

Inability to repay a education loan for a prolonged period leads to the deterioration of the relationship between the borrower and the lender. This is usually a bank or a Non-banking Financial Company (NBFC). Such a situation needs active management.

Below are some major consequences you will face if you fail to repay the education loan 

Credit Score - Your credit score is sure to take a beating if you fail to repay your education loan. This will make taking loans difficult in future, if not impossible

Benefit of Doubt - Preliminary notices will be sent to the borrower mentioning the amount overdue with interest and penal interest. If there is a guarantor, the bank/NBFC might approach him to pay the eduaction loan.

There are some options which you can consider -

Deferring your payments - You can inform your lender a couple of month prior, about your ability to repay the education loan because of some emergency issue

EMI Reduction - You can reduce your monthly EMI amount to plan your finances smartly

One time settlement - You can also settle once and for all with one time settlement option

At Millennium Credit Solutions, we believe that life is easier with excellent credit. We have a dedicated staff devoted to assisting you with your future financial needs. We provide advice and information on how to best manage your current credit to maximize the impact to your qualifying ability.