Private Student Loans and Bad Credit
Your credit is represented by a number called a credit score which ranges from 300 to 850. The higher your credit score the better your credit is, so you want your credit score to be as close to 850 as possible.
There are a number of different credit events that contribute to your credit score. Defaulted loans and a high debt-to-income ratio can lower your credit score, while making on time loan payments and building your credit history with a credit card can improve your credit score.
Credit Impact on Private Student Loans
Your eligibility for a private student loan is based on your credit score. Bad credit can significantly jeopardize your chances of being approved and the amount of the loan you will be approved for. Private student loan applicants with bad credit will have a difficult time being approved. Usually private student loan lenders like to see borrowers with credit scores of 700 or more. However, if you have bad credit or a limited credit history there are still ways to obtain a loan.
Options For Students Applying For a Private Student Loan with Bad Credit
Apply with a cosigner
Applying with a cosigner can boost your private student loan eligibility. A cosigner is a person, who agrees to share liability for the loan. Usually a cosigner is the parent of the student applying for a loan but a cosigner can be any legal U.S. citizen with a good credit score. A cosigner agrees to pay any debts if the borrower is not able to. When you apply for a private student loan with a cosigner both your credit and their credit is checked. This means that as long as your cosigner has good credit, your bad credit score will not carry as much weight.
Characteristics of a great cosigner
- Has a credit score over 700
- Is someone that you trust and know well
- Is someone that completely understands that their credit will be affected by the loan
- Is someone that would be able to make the monthly payments on the loan if you're not able to for any reason
Applying with a cosigner will help lower your private student loan interest rates and improve your chances of being approved!
Improve Your Credit Score
If you have a bad credit score, there are a few things you can do to try to improve your credit. The first step is to review your credit report. You are entitled to one free credit report from each of the three major credit reporting bureaus every year. You should make sure that there are no mistakes on your credit report. By law the credit bureaus and the organizations that provide information to credit bureaus have an obligation to correct inaccurate information on your credit report. If you see something that is inaccurate on your credit score make sure you take the time to contact the corresponding organizations that made the report to have it corrected.
The passage of time is really the only factor that can completely remove negative items from your credit report. However, there are some other things you can do to start to repair your credit:
- Sign up for a student credit card and make on time payments. For example, charge a tank of gas for your car once per month and pay it off each and every month.
- Pay down your existing debt with a regular payment schedule. Work with lenders that you currently have outstanding debt with in order to ensure that your monthly payments work with your budget.