Private Student Loans and Credit
A private student loan can be provided to you as a need-independent loan specifically because it is credit-based, similar to a personal line of credit. As such, it's vital to know exactly where your credit stands. Below are a series of tutorials about credit that will help get yours on track.
What is credit?
Fundamentally, credit is a record of how timely you are in paying back money you have borrowed. Your credit is stored as a report and a score at the US's three credit bureaus: Experian, Equifax and Transunion.
How is credit judged?
Credit scores are numerical indexes based on an algorithm developed by Fair Isaac Company, called a FICO® score. Scores are negatively impacted by events such as late payment, incomplete or partial payments, defaults, and judgments or liens, and range from 300 to 850. The actual algorithm is a trade secret of Fair Isaac, but the following breakdown approximates the weighted values that compose your score.
- 35% Payment history
- 30% Outstanding debt
- 15% Length of your credit history
- 10% Recent inquiries on your credit report
- 10% Types of credit in use
The "average" credit score for "good" or "prime" credit is 675 or better for most firms, such as mortgage lenders. Scores lower than 625 are considered "subprime" and demand scrutiny, while scores lower than 600 will often be denied outright. Learn about student credit cards and your credit score.
What is the required credit score for an private student loan?
Generally speaking, your private student loan application should be accompanied by a credit score of at least 675. Things that will drastically reduce your chances of getting an private student loan include:
- Defaulted loans
- Payments overdue by 90 days or more
- Very high debt/income ratios
To ensure that you can obtain a private student loan for your education, it is essential to have a recent copy of your credit report and repair any delinquencies as thoroughly as possible. Click here for a tutorial on how to repair your credit!