Private Student Loans and Bad Credit
Since private student loans are based on credit, bad credit can significantly jeopardize your chances of being approved. Your credit is represented by a number called a credit score which ranges from 300 to 850. Defaulted loans and a high debt to income ratio can damage your credit score while making on time mortgage or car payments and slowly building your credit history with a credit card can improve your credit score.
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. For example, applying with a cosigner can significantly increase your chances of being approved.
Private Student Loan Options for People with Bad Credit
Apply With A Cosigner
Applying with a cosigner can boost your private student loan eligibility. A cosigner is a person, usually a parent, who agrees to share liability for the loan. They agree 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. A cosigner should be someone:
- With a credit score over 700
- Who you trust and know well
- Who knows that their credit will be affected by the loan
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.
Unfortunately, only the passage of time can completely remove correct negative items from your credit report, however there are things you should do to start to repair your credit:
- Sign up for a student credit card and make on time payments
- Pay down existing debt with a regular payment schedule