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How can a student loan affect your credit score

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Created on
March 14, 2023


What’s Inside

Higher education and studying abroad come at a major expense. But for those looking to get an education load, there’s one big question:

Does a student loan affect my credit score?

Firstly, What Is a Credit Score?

A credit score (CIBIL score) is a three-digit number used by banks and financial institutions to judge how responsible you are with your money. Essentially, it evaluates your creditworthiness and ability to repay potential loans. 

It’s a bit scary to think that a three-digit number is what decides your financial future - and for many seeking a better future, a student loan can be the only option. Getting one depends on how big your loan is, your credit history, your interest rate and the repayment terms of the loan.

How do Student Loans Affect Your Credit Score?

A student loan works just like any other loan. So yes, it does affect your credit score. 

If you’re late on repayments or default on it, it will negatively affect your credit score. Unlike other loans, however, repaying your student loan works a little differently which is why understanding how it works becomes so important. 

Another important thing to keep in mind - don’t borrow more than you need. You don’t just have to repay your loan amount, but also the interest which easily builds up. Take only what’s necessary to finance your education. If possible, take work on the side so you can start repaying the loan right from the get-go.

How Does Repaying My Student Loan Work?

Most banks offer something called a ‘moratorium period’. With this, you can choose not to repay your loan for a period of 6 to 12 months after the completion of your studies - by which time, you’ll have hopefully secured a salaried job. However, interest will continue to accrue  so keep that in mind. 

Will Getting a Student Loan Have a Negative Impact on My Credit Score?

The answer is a little more complicated than that. In fact, from the moment you start inquiring about a loan, a few points will be deducted from your credit report. They indicate to a potential lender that you’re looking to bring on debt. And multiple inquiries will bring that number down even further. 

What’s more important than these few deductions is getting the best rate and EMI on your loan - which is eventually what decides your overall credit score. 

At the end of the day, your credit score will boil down to your ability to repay the loan and timely payments. After all, it’s not the student loan that negatively affects your credit score but an unpaid student loan. If you don’t make payments on your loan on time, you’ll be considered a ‘high-lending risk’ making it difficult to secure a car/house/business loan in the future. 

Do My Student Loans Go Away After 7 Years?

If you default on your payments, that status will be reflected on your CIBIL credit report for as long as seven years. 

It’ll be difficult for you to obtain a loan and even if you do receive one, it would be a loan at an absurdly high interest rate. And if you think that’s enough to default on your loan, the obligation of loan repayment will always exist until you fully repay it.

How Do I Maintain a Good Credit Score Despite Being in Debt?

Being in ‘debt’ does not need to have the negative connotation that it does. Loans can be good for building your future as long as you’re handling debt responsibly and repaying your loan payments on time. Of course, this is dependent on your income and keeping track of your loans. 

And it’s not all negative.  If you make the payments on time, it’ll work very well to positively improve your credit score and build your credit history. It also helps that in the years you’re repaying your loan, you’ll save on income tax.

In conclusion, thoroughly read through the terms and conditions of your student loan, borrow only how much you need and make timely payments to set your financial future and build a good credit score.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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