The credit score-interest rate connection: how a good score can save you thousands on student loans
Learn how your credit score impacts student loan interest rates and repayment costs. Get tips to improve credit, save money, and secure competitive rates—even without a co-signer with Prodigy Finance.
When planning to study abroad, most students focus on getting admitted into a good university, preparing for entrance exams, and applying for a visa. However, one factor that can significantly impact your financial future, yet is often overlooked, is your credit score.
Whether you're taking an international student loan with a co-signer or planning to build credit in a new country, your creditworthiness directly affects the interest rate on your student loan. Even a small difference in interest rate, such as 1%, can mean paying thousands more or less over the life of your loan.
In this guide, we’ll break down the link between credit scores and interest rates, how international students can manage or build credit, and how to save money by understanding your credit profile before borrowing.
What is a credit score?
A credit score is a three-digit number, typically ranging from 300 to 850, that represents your creditworthiness. It is based on your credit history, payment behaviour, debt levels, and other financial factors.
Key components*:
Payment history (35%)
Credit utilisation (30%)
Length of credit history (15%)
New credit enquiries (10%)
Credit mix (10%)
Lenders use your credit score to decide:
Whether to approve your loan application
What interest rate to offer
How much risk do you pose as a borrower
*Source: www.myfico.com
How does your credit score impact your student loan interest rate?
Simply put, the better your credit score, the lower your interest rate will be.
Here’s why:
Lenders view borrowers with high credit scores as low-risk. They’re more likely to repay their loans on time, so lenders reward them with lower interest rates and better loan terms.
Credit score range | Example interest rate* |
|---|---|
750 – 850 | 5.5% – 6.5% |
700 – 749 | 6.5% – 8% |
650 – 699 | 8% – 10% |
Below 650 | 10% or more |
On a $50,000 loan over 10 years at 7% interest (Monthly payment = ≈ $580.54), you’d pay about $19,665 in total interest. At 6% interest (Monthly payment = ≈ approximately $555.10), that drops to about $16,612 in total, representing a savings in interest of over $3,000.
*Data is for illustrative purposes only and does not reflect any specific lender’s loan offers at the time of publication.
Do international students have credit scores?
Most international students do not have a credit score in the country where they plan to study, especially in the US or UK. This often leads to:
Rejected loan applications
Very high interest rates
The need for a co-signer with a strong credit profile
How Prodigy Finance solves this problem
Prodigy Finance offers loans without requiring a co-signer or collateral, specifically designed for international students.
Rather than relying solely on credit scores (We do request a credit history, but having no prior credit will not affect your eligibility), we evaluate:
Your future earning potential
Programme reputation and university ranking
Your academic and professional background
This forward-looking model helps GRE or GMAT-qualified students secure funding based on who they’re becoming, not just who they’ve been financially.
Ways to improve your credit score before applying
If you already have a credit profile in your home country, improving it could help you secure better terms from lenders who consider credit history.
Steps to build or boost your credit score:
Pay all bills on time, as late payments harm your score.
Keep your credit utilisation ratio below 30%.
Avoid applying for new loans or credit cards just before your student loan application.
Keep old credit accounts open; a longer history builds trust.
Dispute any errors on your credit report promptly.
Loan simulation: good vs poor credit score
Let’s compare two students taking a $50,000 loan over 10 years:
Rates | Student A (Good Score) | Student B (Poor Score) |
|---|---|---|
Interest Rate | 6% | 11% |
Monthly Payment | $555 | $689 |
Total Repayment | $66,600 | $82,680 |
Extra Paid | – | $16,080 more |
A 5% difference in interest rate can cost over $16,000 in extra repayment.
How to know your credit score
You can check your credit score through:
Credit bureaus: Experian, Equifax, TransUnion
Banking apps: Many offer free credit checks
Online tools: CreditKarma, ClearScore, CRED (India), and more
Check your score a few months before applying for a loan or visa. This gives you time to improve it if needed.
Can you build credit abroad as a student?
Yes! In countries like the US or Canada, you can start building credit even while you study.
Tips:
Apply for a secured credit card
Pay rent and utility bills on time
Use credit-building apps like Self, Petal, or Zolve
Repay your USD/GBP student loan EMIs on time. This also helps build credit
Over time, strong credit can help with:
Better interest rates on future loans
Higher chances of PR or visa renewal
Easier approval for car loans, credit cards, or rental housing
Key takeaways
A good credit score can reduce your student loan interest rate, which could save you thousands in interest in the long term.
International students without credit scores can still get competitive* loans from lenders like Prodigy Finance, who assess your future potential.
If you’re using a co-signer, make sure they have a good credit score.
Start building or improving your credit profile months before applying.
Good credit at home or abroad gives you more financial flexibility in the long run.
Conclusion
Understanding the connection between your credit score and interest rate is key, whether you're a GMAT achiever aiming for a top MBA, or a GRE-qualified student planning an MS abroad. Every percentage point saved in interest reduces your financial burden.
With lenders like Prodigy Finance, you don’t need to let a lack of credit history hold you back. Our future-focused approach puts your potential first.
So before you submit your GMAT scores or apply for your loan, take a moment to check your credit or your co-signer’s. It could be one of the smartest financial decisions you make.
