If you find yourself wondering what credit score is needed for a student loan, you should first know that there are two main types of loans with different requirements. Whether or not you need a credit score and established credit history depends on what type of loan you’d like to apply for. There are two types of student loans you can apply for: private and federal.
You don’t need a credit score for a federal loan, but you will need a good credit score in order to get a private loan. However, even if you don’t have much credit history or your credit score isn’t the greatest, there are still ways you can apply for a private student loan.
Here we’ll explore the credit scores you’ll need to apply, eligibility requirements for both types of loans, and how to apply for a loan with bad credit.
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What Is A Credit Score?
A credit score is a number typically between 300-850 assigned to each individual that is based on their credit portfolio over time. It’s meant to show the creditworthiness of an individual, or in other words, if you pay your bills on time.
A credit score is often asked for when applying for major loans, such as student loans, car loans, or a mortgage.
There are a few ways to build your credit, such as paying all your bills on time, paying off debt, and asking for credit limit increases on your credit cards.
How To Check Your Credit Score
It’s a good idea to check your credit score before applying for student loans, just to get a better idea of where you stand. Checking your credit score is a simple process and there are a few reputable companies that will help you do it.
Websites such as Equifax, Experian, and TransUnion will allow you to request a credit report for a fee. You can also check with your bank first as some of them will be able to provide you with your current credit score. You can also request your score for free using LendingTree’s free credit score tool.
What Credit Score Do You Need For A Federal Student Loan?
You don’t need to have an existing credit score to get a student loan. This type of loan is provided by the government with the understanding that many college-age students don’t have enough established credit history to apply for private loans.
Unlike private loans, federal loans give you a lower interest rate, so many students prefer them over the alternative. Another advantage is that making regular payments on a federal student loan can actually help you build your credit score.
Federal Student Loan Eligibility Requirements
Even though you don’t need a credit score, there are still basic eligibility requirements.
In order to qualify for a federal student loan in the US, you’ll need to be a citizen enrolled in an eligible college program.
The type and amount of loan you receive will also vary depending on your family’s financial situation.
To apply for a federal student loan, you’ll need to submit a FAFSA (Free Application for Federal Student Aid) application. Here, you can apply for both student loans as well as grants and scholarships that don’t need to be paid back.
What Credit Score Do You Need For A Private Loan?
Unlike a federal loan, you will need some sort of credit history to apply for a private loan since these come from non-government lenders or banks. In general, lenders are looking for a score of around 670 or higher, so be sure to check your credit score before going to apply.
If you don’t have any credit history but you still require financial aid above and beyond a federal loan, then you may still be able to apply for a private loan using a co-signer.
A co-signer is someone who can sign on the loan with you and acts as a guarantor. The co-signer will need to be able to prove they have a good credit score along with stable income.
In the event that you’re unable to pay your private loan back, the lenders can seek repayment from your co-signer.
What Credit Score Do You Need To Refinance Student Loans?
It’s not uncommon to refinance your student loans after you’ve graduated and started working. While it’s not always necessary, refinancing your loans can help you avoid student loan debt.
There are a few benefits to refinancing your student loans:
- Keep more of your paycheck by getting a lower monthly payment
- Save on interest fees by paying off your loan faster
- Qualify for other large loans, such as a mortgage, by reducing your debt
Once you start working and you’re no longer a student, you’ll have an easier time building your credit score, so you’ll be able to qualify for refinancing your loans. Again, most lenders will look for a score of around 670 or above. If you have a lower credit score, you can still qualify, but it can affect the interest rate you get.
Like your original private student loan application, you can also use a co-signer when refinancing to improve your chances of being accepted and to get a better interest rate.
Can You Get A Student Loan With Bad Credit?
If your education depends on receiving financial aid but you have a bad credit score, this doesn’t mean that you don’t have any options.
As we mentioned earlier, federal student loans don’t even require a credit check, so you’ll likely qualify if you meet the eligibility criteria.
As for private loans, if you’re worried about your bad credit score, you can get a co-signer just like you would if you didn’t have any credit history.
Make sure your co-signer is someone you can trust and that also trusts you, since if you default on your loans, they’ll be responsible for repaying. You can ask a parent, family member, or a friend who works and has a steady income to co-sign your loan.
Photo by Andrea Piacquadio from Pexels
Applying For Student Loans
Once you know which type of loan you’d like to apply for and you’ve checked your credit score, it’s time to apply for your loans.
The application for a federal loan is more straightforward since the requirements are the same across the board. You need to be a US citizen and enrolled at an approved school in order to submit an application.
The amount of money you’ll receive can differ depending on your situation.
For example, dependent students — meaning those whose parents help them financially — qualify for an undergraduate loan of around $5,500 a year. Independent students, or those that don’t receive any financial help from their parents, can receive up to $9,500 per year.
You can check with the federal student aid office to see the amounts you’re eligible for and to complete the FAFSA form.
As for private loans, the application may vary by lender, so it’s best to reach out to different lenders directly. In general, you’ll have to do a credit check and the lender might ask you if you’re able to provide a co-signer.
To Wrap Up
So, what credit score is needed for a student loan? Well, that really depends on which loan you choose.
Many students apply for either a federal loan or a private loan, and sometimes even both. If you have a good credit score, then applying for a private loan can be in your best interest since it’ll help you accumulate good debt and improve your credit score, as long as you’re able to keep up with your regular payments.
Even without a credit score, applying for a federal loan is a great place to begin building up your credit history since they usually come with low interest rates. Whichever option you choose, make sure you meet the eligibility requirements before applying in order to avoid a long process of reapplying.
At University of the People, we offer tuition-free distance learning, so you don’t even need to worry about applying for loans. While we do require minimal course assessment fees, we also offer a diverse number of scholarships if you are in need of financial aid.