Borrowing a student loan with bad credit can often be a challenge, but it is possible. If you have bad credit, federal student loans are a great place to start, but you can also look for a co-signer or find a lender who uses other factors to determine your eligibility. Here’s how to get started.
Options for student loans with bad credit
When shopping for student loans, any options you look at will fall into one of two categories: federal student loans or private student loans. As a borrower with bad credit, you will come across different advantages and disadvantages for each type of loan.
Federal student loans
Federal student loans are a form of education funding funded by the US Department of Education. You can use the proceeds of federal student loans to cover expenses such as:
- Tuition fees.
- Room and board.
If you have credit problems, federal student loans are usually the best place to start. Most federal student loans do not require a credit check to be eligible for funding, so bad credit will not be a barrier in most cases. PLUS loans are the only exception; these loans will check your credit even if they only look for an adverse credit history and do not have minimum credit score requirements.
Federal student loans have loan limits. As a result, these loans might not be enough to cover all of your education costs.
Private student loans
Private student loans are a type of education financing available from private lenders. Online lenders, banks, credit unions, and even colleges and universities themselves can offer private student loans.
With a private student loan, the lender will almost always check your credit as part of the application review process. When you have bad credit, getting a private student loan can be a challenge. Bad credit can also affect the interest rate and loan terms a lender offers you, potentially making it more expensive to borrow if you qualify for financing.
Many private student loan lenders will require you to have a minimum score of 600 to average to be eligible for funding. However, the lender may allow you to apply for a private student loan with a co-signer if you are concerned that you may not be eligible on your own. Just keep in mind that co-signing for student loans has its own drawbacks, such as the risk of credit score damage for your loved one.
Most importantly, it is important to conduct your own research if you are considering a private student loan for bad credit. Comparing offers from several lenders can save you money on interest rates, especially with bad credit student loans. Over time, these savings could add up to a significant amount of cash.
How To Improve Your Credit Score Before Applying For A Private Student Loan
Because your credit plays a key role in the approval process, it is wise to make sure that your credit score is in the best possible shape before applying for a new private student loan. Better credit can improve your chances of getting approved and could help you get better rates and terms when you borrow money.
Here are four steps you can take if you want to improve your credit.
- Check your three credit reports. When reviewing your credit reports, make a list of any information that appears to be inaccurate and any negative items you need to correct. You can request a free copy of each of your three credit reports each week at AnnualCreditReport.com.
- Dispute credit errors. Millions of Americans have errors on their credit reports. Some credit report errors can damage your credit score. If you discover any errors in your credit report, it is wise to contestation them right away.
- Reduce the use of your credit card. A high balance-to-limit ratio on your credit cards can hurt your credit score, even if you make your payments on time. You can lower your credit usage rate (and probably save money in interest) by paying off your credit card balances. Increasing your credit limit is another ready-made way that could help you reduce your credit usage if you can’t afford to pay off all of your balances at once.
- Establish positive credit. If you have a poor credit report, adding new, positive accounts might benefit you over time. Keep in mind that you may want to start with accounts that you are likely to qualify for with bad credit or no credit at all. Secured credit cards or credit loans may be worth considering here.
The bottom line
Can You Get A Student Loan With Bad Credit? There’s a good possibility that you can, and your best bet is to start with federal student loans. But if you need private student loans to finance your education, bad credit could make borrowing harder and more expensive.
Focus on improving your credit as much as possible before you apply for financing. And remember, if you decide to take an interest rate that you’re not excited about now, you can still refinance your student loans in the future.