If you plan to pursue a college degree, you may need to take out a loan to pay for your education. Knowing what your options are to pay for school is crucial. If you don’t have a credit history or your score could be better, can you even borrow money for college? What credit score do you need for a student loan?
Understanding student loans and credit scores
Because college students take out loans to invest in their educations, these loans are considered low risk. Lenders may have a better chance of being paid back as student loans are hard to discharge in bankruptcy. As such, the required minimum credit score for student loans needed is usually less than for other types of loans.
What is the minimum credit score for a student loan?
The two primary types of student loans are federal and private. The Department of Education (DOE) funds student loans, so it doesn’t require a credit score or a co-signer. Because you get a set interest rate, you don’t have to worry that you will be stuck with a higher rate if you have a low credit score.
Banks, credit unions, or other private lenders typically fund private student loans. You need a good credit score to get a private student loan. Most private student loan credit score requirements range from 650 to 670.
Other private student loan requirements
Each private student loan provider sets its lending requirements. Before loaning money, private lenders often consider common factors, such as whether you meet minimum credit and income requirements, have a co-signer, and are enrolled in an eligible institution. Lenders can also look at your debt-to-income ratio to help determine whether you can repay what you owe.
Other federal student loan requirements
The DOE offers three types of direct loans: direct subsidized, direct unsubsidized, and Direct PLUS loans. Most federal student loans don’t require a credit score. However, students and parents with an adverse credit history may not qualify for a Direct PLUS Loan.
Federal student loans offer many benefits that private lenders don’t. Federal student loans come with fixed, lower interest rates. Repayment options consider how much money you make. You can defer payment if experiencing economic hardship. You may be eligible for loan forgiveness under specific programs with a federal student loan.
Private student loans typically don’t offer these benefits. Interest rates may be higher and can change over time. Private lenders base your payments on how much money you make and may not provide deferral options in times of economic difficulty.
How your credit score affects your student loans
When taking out a private student loan, your credit score affects how much you can borrow and your interest rate. A higher credit score can lower your interest rate and expand your access to funds. But with a low credit score, you may be stuck with a higher interest rate and have less access to funds.
Factors that can influence your credit score for student loans
Lenders look at your credit score to determine how likely you are to repay your loan. You can increase your approval chances in a variety of ways.
A co-signer agrees to repay the loan if you default. Adding a co-signer with a good credit score to your private student loan can help you get approved with a lower interest rate. Remember that if you fall behind or default on your payments, your co-signer is equally responsible for your debt.
Responsible credit use
Using your credit cards responsibly can improve your credit score. You can demonstrate responsible credit card use by keeping your balance low and paying what you owe on time.
While your income may not directly affect your credit score, a private lender looks at how much money you make to determine whether you can pay back what you owe.
Avoid taking on too much debt
Too much debt can drive down your score. Credit rating agencies consider your credit card utilization ratio, which is the amount owed on credit card debt compared to your total available credit. A high ratio can drop your credit score.
Positive payment history
Your payment history is one of the largest factors determining your credit score. Making consistent payments on time helps boost your score.
Alternatives to student loans
Before you take on student loans, look for other options to fund your education. You may be eligible for scholarships or grants, which don’t require repayment. Consider attending a community college or lower-cost school for a few years before transferring to a university. There may be employment opportunities at your school or side jobs you can pick up to help fund your education.
Get A Student Loan With No Credit Score
When you need a student loan to pay for college, prioritize getting a federal student loan over a private one. You don’t need a good credit score for federal student loans. Plus, you may get a lower interest rate and flexible repayment terms. If a private student loan is your only option, be prepared for the lender to pull your credit and require a co-signer.
Can you get a student loan with a 600 credit score?
You do not need a credit score for federal student loans. But if you are applying for a private student loan, the lender may require you to have a co-signer if you have a 600 credit score.
How hard is it to get a student loan?
When you attend an eligible school and complete the Free Application for Federal Student Aid (FAFSA) online, getting a federal student loan is not hard. If you pursue a private student loan, you must meet the lender’s credit and income criteria.
Do you need good credit for a student loan?
You do not need good credit to take out a federal student loan. You need a good credit score to get a private student loan.