diff --git a/contracts/creditline-contract/src/lib.rs b/contracts/creditline-contract/src/lib.rs
index 573c77c..813ac09 100644
--- a/contracts/creditline-contract/src/lib.rs
+++ b/contracts/creditline-contract/src/lib.rs
@@ -639,14 +639,29 @@ impl CreditLineContract {
             loan.guarantee_amount,
         );
 
+        // Policy: Option (a) - Propagate failure.
+        // If a reputation contract is configured (Some), the default penalty score update
+        // must succeed atomically with the loan default. If the score update call fails,
+        // we emit a ScoreUpdateFailed event and panic, reverting the entire transaction
+        // so loan state (Defaulted) and reputation score can never diverge.
+        // Note: If no reputation contract is configured (None), score updates are
+        // intentionally skipped as the protocol is operating without on-chain reputation integration.
         if let Some(reputation_contract) = storage::get_reputation_contract(&env)? {
             let penalty = Self::calculate_default_penalty(&env, &loan);
             let updater = env.current_contract_address();
-            let _ = env.try_invoke_contract::<(), soroban_sdk::Error>(
+            let res = env.try_invoke_contract::<(), soroban_sdk::Error>(
                 &reputation_contract,
                 &Symbol::new(&env, "decrease_score"),
-                (updater, loan.borrower, penalty).into_val(&env),
+                (updater, loan.borrower.clone(), penalty).into_val(&env),
             );
+            let call_succeeded = match res {
+                Ok(Ok(())) => true,
+                _ => false,
+            };
+            if !call_succeeded {
+                events::emit_score_update_failed(&env, &loan.borrower, false, penalty);
+                panic_with_error!(&env, CreditLineError::ReputationCallFailed);
+            }
         }
 
         Self::exit_non_reentrant(&env);
@@ -1130,6 +1145,12 @@ impl CreditLineContract {
         Ok(())
     }
 
+    /// Handles increasing reputation score upon full loan repayment.
+    ///
+    /// Policy: Option (a) - Propagate failure.
+    /// The score reward update must succeed atomically with full loan repayment.
+    /// If the score update call fails (reverts), we emit a ScoreUpdateFailed event and panic,
+    /// reverting the entire repayment transaction so loan state and reputation score can never diverge.
     fn handle_reputation_increase(
         env: &Env,
         reputation_contract: &Address,
@@ -1139,11 +1160,19 @@ impl CreditLineContract {
         due_date: u64,
     ) {
         let score_increase: u32 = if payment_date < due_date { 15 } else { 10 };
-        let _ = env.try_invoke_contract::<(), soroban_sdk::Error>(
+        let res = env.try_invoke_contract::<(), soroban_sdk::Error>(
             reputation_contract,
             &Symbol::new(env, "increase_score"),
             (updater, borrower, score_increase).into_val(env),
         );
+        let call_succeeded = match res {
+            Ok(Ok(())) => true,
+            _ => false,
+        };
+        if !call_succeeded {
+            events::emit_score_update_failed(env, borrower, true, score_increase);
+            panic_with_error!(env, CreditLineError::ReputationCallFailed);
+        }
     }
 
     fn get_protocol_parameters(env: &Env) -> ProtocolParameters {
diff --git a/contracts/creditline-contract/src/tests.rs b/contracts/creditline-contract/src/tests.rs
index 20ebfe3..32b6631 100644
--- a/contracts/creditline-contract/src/tests.rs
+++ b/contracts/creditline-contract/src/tests.rs
@@ -3173,10 +3173,10 @@ fn test_partial_repayment_does_not_change_reputation_score() {
 }
 
 #[test]
-fn test_reputation_call_failure_does_not_block_repayment() {
-    // Even if the reputation contract call fails, the loan repayment must succeed
-    // We verify this by removing the creditline as a reputation updater and
-    // confirming the loan still moves to Paid status.
+fn test_reputation_call_failure_reverts_repayment() {
+    // Policy (a): Revert surrounding operation on reputation call failure.
+    // If the reputation contract call fails, the repayment transaction must revert completely
+    // so loan status and score never diverge.
     let t = RealIntegrationCtx::setup();
     let provider = Address::generate(&t.env);
     let user = Address::generate(&t.env);
@@ -3200,13 +3200,52 @@ fn test_reputation_call_failure_does_not_block_repayment() {
     // Revoke updater permission so the increase_score call will fail
     t.reputation.set_updater(&t.admin, &t.creditline_id, &false);
 
-    // Repayment must still succeed despite the reputation call failure
-    t.creditline.repay_loan(&user, &loan_id, &total_due);
+    // Repayment must fail with ReputationCallFailed
+    let res = t.creditline.try_repay_loan(&user, &loan_id, &total_due);
+    assert_eq!(res, Err(Ok(CreditLineError::ReputationCallFailed)));
 
-    let loan = t.creditline.get_loan(&loan_id);
-    assert_eq!(loan.status, LoanStatus::Paid);
-    assert_eq!(loan.remaining_balance, 0);
-    // Score unchanged because the call was silently ignored
+    // Loan status remains Active and balance remains unchanged because transaction reverted
+    let loan_after = t.creditline.get_loan(&loan_id);
+    assert_eq!(loan_after.status, LoanStatus::Active);
+    assert_eq!(loan_after.remaining_balance, total_due);
+    assert_eq!(t.reputation.get_score(&user), 60);
+}
+
+#[test]
+fn test_reputation_call_failure_reverts_default() {
+    // Policy (a): Revert surrounding operation on reputation call failure.
+    // If the reputation contract call fails during mark_defaulted(), the default transaction must revert completely.
+    let t = RealIntegrationCtx::setup();
+    let provider = Address::generate(&t.env);
+    let user = Address::generate(&t.env);
+    let vendor = Address::generate(&t.env);
+
+    t.fund_pool(&provider, 10_000);
+    t.register_vendor(&vendor, "Default Vendor");
+    t.set_score(&user, 60);
+    t.mint(&user, 500);
+
+    let now = t.env.ledger().timestamp();
+    let schedule = t.single_installment(1_000, now + 1_000);
+    let loan_id =
+        t.creditline
+            .create_loan(&user, &vendor, &1_000, &200, &schedule, &LoanType::Standard);
+
+    // Advance time past grace period
+    t.env
+        .ledger()
+        .set_timestamp(now + 1_000 + 86_400 * 7 + 1);
+
+    // Revoke creditline updater permission on reputation contract
+    t.reputation.set_updater(&t.admin, &t.creditline_id, &false);
+
+    // Defaulting must fail with ReputationCallFailed
+    let res = t.creditline.try_mark_defaulted(&loan_id);
+    assert_eq!(res, Err(Ok(CreditLineError::ReputationCallFailed)));
+
+    // Loan status remains Active because default transaction reverted
+    let loan_after = t.creditline.get_loan(&loan_id);
+    assert_eq!(loan_after.status, LoanStatus::Active);
     assert_eq!(t.reputation.get_score(&user), 60);
 }