The foundation of a successful professional life is a higher education. But in the present day, the cost of a quality education has gone up dramatically. The availability of student loans or educational loans is the only means by which the general public can afford to pay for their higher education in these circumstances. but now the question is that Do Student Loans affect credit scores? Yes, your credit score can be significantly impacted by student loans. Your payment history, credit utilization, length of credit history, types of credit accounts, and recent credit inquiries are just a few of the variables that go into calculating your credit score, which is a numerical representation of your creditworthiness.
Brief description of Do Student Loans affect credit scores
Whether you want to return to school after a break or continue your education in India or abroad, applying for an education loan is an easy process. Banks and other financial institutions have set the requirements for obtaining a study loan as well as the eligibility for education loans. Your eligibility for an education loan will be determined by several factors, including the course, the college's or institution's reputation, the student's academic record, collateral security against the loan amount, income, and the credit score and report of your parents.
In this post, we'll discuss how student loans affect your credit score. Let's first address all the confusion surrounding credit reports and scores.
What is a credit score, and why is it important?
A credit score is a three-digit number that ranges from 300 to 900 and indicates your creditworthiness. To create credit reports and scores, the four major credit bureaus—TransUnion CIBIL, Equifax, Experian, and CRIF Highmark—assemble information gathered from banks and other financial institutions. A person's credit score is used by banks and other financial institutions to determine their creditworthiness. With a higher credit score, banks will lend you money more easily.
Is your credit score impacted by a student loan?
Since a student loan is also a debt product, it does indeed have an impact on your credit score. As with other loan products like personal, auto, or home loans, your credit score will suffer if you default on your education loan or student loan. Before the loan is repaid, education loans usually have a moratorium period that lasts for one year following the borrower's coursework completion or six months following their employment, whichever comes first. You should start paying back your education loan as soon as you graduate from college or get your first job. You can get an estimated monthly payment for your education loan in advance by using a loan EMI calculator.
Your credit score can rise if you make your educational loan payments on time
Most people's first exposure to credit may be through a student loan or education loan. Unlike other types of loans, student loans have a moratorium period that lets you pay just interest for a few years while you still have to repay the loan. But you should start paying your education loan EMIs on time as soon as the moratorium ends. If you repay your education loan on time, your credit score may increase.
If you repay your education loan on time, your credit score may increase
A strong credit history can be built by timely repayment of your school loans. Building a strong credit score benefits from having a lengthy credit history. However, if you are able to pay off your education loan earlier, you should always weigh the benefits and drawbacks of doing so and make the right decision.
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The credit mix can be made better
A credit mix is a collection of different credit types, including home, education, auto, personal, and so on. Loan amounts that are both secured and unsecured are part of a healthy credit mix. A student loan may be an unsecured or secured credit, depending on the terms and conditions of your loan. Helps to build a substantial credit history. The maximum loan term for education loans is five to ten years.
Conclusion
Lastly, as you take out a student loan or education loan to launch a successful career, remember not to make small mistakes that could compromise your future career. You should always be responsible for the credit you take out and make timely loan repayments to build a credit score and report. You can get a free credit score check on CRED.
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