How to Get a Student Loan When You Have Bad Credit
April 18, 2024
Many students need to apply for student loans to help pay for college. But because federal student loans have borrowing limits that don’t always cover all education costs, students also take out private student loans.
According to the Education Data Initiative, the typical student attending a public college borrows around $25,969, and the total student loan debt in the U.S. is approximately $1.774 trillion.
But is credit required for student loans? While the average credit score of an 18 to 24-year-old is around 679, which is considered good credit. Still, credit requirements may be a concern for those who haven’t had the opportunity to build a credit history.
The truth is that some types of student loans do require a credit check. But for most college students, applying for student loans with no credit shouldn’t be a problem. And if it is, there are ways to get the financing you need.
Can You Get a Student Loan With Bad Credit?
The good news is that most federal student loans don’t require credit checks, so even if your credit is poor, you may still qualify for federal loans. Just be aware that if you’re borrowing a Direct PLUS loan, you will be subject to a hard credit check.
Now for the bad news—if federal loans don’t cover your education costs, getting additional financing will likely be more difficult. One of the key differences between federal and private student loans is that private lenders will typically run a credit check and your credit history will factor into their lending decisions.
Federal Student Loans Are Best for Students With Bad or No Credit
Federal student loans are the way to go if you’re looking to get a student loan but don’t have a credit history.
With federal undergraduate loans, there’s no credit check required at all. Everyone eligible to apply based on their financial need will be approved. The same goes for Direct Loans for graduate and professional students.
So if you’re a college student with no credit history or a limited one, you shouldn’t have a problem qualifying for federal student loans. If your credit history improves, you may even be able to refinance federal student loans later at a lower interest rate. Student loan refinancing can help to streamline the student loan repayment process.
Federal Student Loans for Parents With Bad Credit
It’s important to remember that if you’re applying for a Parent PLUS Loan, the Department of Education runs a credit check.
Even then, you don’t need to worry if you don’t have a credit history. The Department of Education only looks for profound negative items on your credit report. Examples include bankruptcy, foreclosure, repossessions, certain past-due debts, and more. Read the Office of Federal Student Aid’s definition of adverse credit to learn more.
If you’re concerned about the credit check, you can look for an endorser to qualify for the loan. You can also appeal a denial with the Department of Education.
Can You Get a Private Student Loan With No Credit?
In some cases, federal student loans may not be available or you may have exhausted your allotment. In either case, you may need to turn to private student loans to bridge the gap between the financial aid you receive and what you owe.
While the federal government won’t turn you away for not having a credit history, private student loan companies might. These private lenders don’t have the same backing as the federal government. For that reason, they use a risk-based pricing model.
In other words, when you apply for a private student loan, the lender will run a credit check. If you have a good credit score, you’re statistically less likely to default on payments than someone with a poor credit rating. As a result, you’ll have a better chance of getting approved and scoring a lower interest rate.
If your credit file is relatively thin or you don’t have a credit history at all, though, the lender doesn’t have enough information to determine whether you’re at risk of default. In this scenario, the lender may deny your application because of the risk of not knowing how you’ve handled credit in the past.
Apply With A Cosigner
That doesn’t mean your chances of getting a private loan without a credit history are gone completely. Many private lenders allow you to apply with a cosigner. Your lender will consider your cosigner’s credit history and score in addition to your own, which may improve your odds of qualifying for a student loan.
Do All Student Loan Applications Require Credit Checks?
If you’re applying for federal student loans, your lender won’t run a credit check. While that’s not always the case, federal student loans are generally the best bet for borrowers with low or no credit.
However, if you’re borrowing private student loans, prepare accordingly, as your lender will likely run a credit check. Consider bringing on a cosigner if you’re concerned that your credit may create a barrier to approval.
Will Applying for a Student Loan Affect My Credit Score?
If you aim for minimal credit score impact, your best bet when applying for student loans is to prequalify with lenders beforehand. When you prequalify for a loan, most lenders run a soft credit check, which does not affect your score. Prequalifying for student loans is a great way to learn more about the rates you may be eligible for without damaging your credit score.
Remember, though, that once you’ve chosen a lender, they will likely run a hard credit check when you submit your application, which will have a temporary negative impact on your credit score before you can take out the loan.
Improving Your Credit Score Before Applying for Private Student Loans
If you plan to apply for student loans soon, be sure to take as many actions as possible to improve or maintain your credit score. While significantly improving your score may take time, building credit in your 20s can set you up for success in the future. Here are some tips that could boost your credit:
- Be sure to make on-time payments: The most significant factor in calculating your credit score is whether or not you’ve paid your bills on time. Keeping up with monthly payments like rent, utilities and insurance could help you to increase your credit score and qualify for a lower student loan interest rate.
- Focus on your debt-to-income ratio: Your debt-to-income ratio (DTI) calculates how much money you owe compared to how much you make. Paying down debt, especially high-interest debt, could help improve your credit score.
- Consider your credit history: If you don’t have a credit history, applying for a single credit card and using it to make small monthly purchases is a great way to begin building one. Just be sure not to spend more than you can pay off easily, and continue to make all your credit card payments on time.
Apply for a Private Student Loan with ELFI Today
Ready to explore your private student loan options? ELFI offers student loans with competitive rates, flexible terms, and transparent borrowing requirements. Explore our private student loan offerings or contact our customer care team.