Income, Credit Score, and Credit History: Which is Keeping You From Refinancing?August 3, 2020
If your goal is to become debt-free as quickly as possible, student loan refinancing can be a powerful tool for managing your loans. ELFI customers reported that they save an average of $272 per month, and should see an average of $13,940 in total savings after refinancing their loans with Education Loan Finance.1
By Kat Tretina
Unfortunately, not everyone qualifies for refinancing the first time they apply. When you submit your loan application, refinancing lenders look at your income, credit score, and credit history to determine whether to issue you a loan. If you don’t meet their requirements in just one area, the lenders will deny your application.
If you aren’t quite eligible for refinancing quite yet, here’s what you can do to improve your application so you can get approved in a few months — and qualify for a lower interest rate.
Student Loan Refinancing Requirements
Borrower requirements can vary from lender to lender, and some lenders are very vague about their refinancing criteria. However, ELFI is different and has transparent eligibility guidelines.
To qualify for student loan refinancing with ELFI, you must meet the following student loan refinancing* requirements:
- You must be a U.S. citizen or permanent resident
- You must be the age of majority or older
- You must have at least $15,000 in student loans to refinance
- You must have a bachelor’s degree or higher
- You must have a minimum income of $35,000
- You must have a minimum credit score of 680
- You must have a minimum credit history of 36 months
- Your degree must come from an approved post-secondary institution and program of study
Tips for Improving Credit Score
ELFI’s minimum credit score for refinancing applicants is 680. If your score is less than that, you’re not alone. According to Experian, about 33% of Americans have a credit score under 670. However, that doesn’t mean you’re stuck with a poor credit score. By making some changes, you can boost your credit.
To improve your score, use these tips:
- Make all of your monthly payments on time: Your payment history makes up 35% of your credit score. To raise your credit, pay all of your bills and minimum loan payments on time. When possible, sign up for automatic payments to minimize the risk of missing payments.
- Sign up for Experian Boost: Experian Boost is a free service you can use to get credit for your cell phone and utility payments. On average, users who sign up improve their credit scores by 13 points.
- Keep your credit card balances low: Your credit utilization — or how much of your available debt you use — accounts for 30% of your credit score. Pay down existing debt and use your credit cards sparingly to bring up your score.
- Don’t open new credit accounts: Every time you open up new accounts, your credit score will drop. New credit makes up 10% of your credit score, so only open up a new account when you really need it.
- Review your credit report and dispute errors: Review your credit report for free at AnnualCreditReport.com and look for errors, such as fraudulent accounts opened under your name. If you see any issues, dispute them with the credit bureaus and have them removed from your credit report.
How to Increase Income
If you’re a recent college graduate, your income may be less than the minimum required for student loan refinancing. To boost your earnings, consider these strategies:
- Ask for a raise: If you’ve been at your job for over a year or more and have done good work and received positive feedback, it may be time to ask for a raise. The average raise is 3.3%, which could give you the additional income you need to qualify for a loan.
- Learn new skills: If a raise isn’t possible due to the economy or because your company isn’t performing well, try to learn new skills that would allow you to secure a promotion or a new position at another company.
- Take on consulting work: If you have some extra time, consult or freelance on a part-time basis for additional income. For example, you could lend your social media expertise to startups, design marketing plans for entrepreneurs, or do graphic design work for local businesses.
How to Build Credit History
If you don’t have a lengthy credit history, it can be difficult to qualify for a loan. To start building your credit history, follow these steps:
- Ask a friend or relative to add you as an authorized user to their credit card account: If you have a parent, relative, or friend with good to excellent credit, ask them if they will add you as an authorized user to their credit card account. When you become an authorized user, you get access to their credit history and credit line, instantly lengthening your own credit history. Just make sure you set guidelines on how the credit card should be used and how you’ll repay them for any purchases.
- Apply for a credit builder loan: With credit builder loans, you take out a loan, and it’s held for you in a savings account. You make payments toward the loan each month. After the loan is paid off, the lender releases the money to you, so it can help you build your savings, as well. Many financial institutions offer credit builder loans.
- Open a secured credit card account: Without an established credit history, you may not qualify for a traditional credit card, but you can get a secured credit card account. With a secured card, you put down a security deposit that serves as your credit limit. As you make payments, your payment history is reported to the credit bureaus, establishing your credit and improving your credit score.
Refinancing Your Student Loans
Improving your credit history, boosting your credit scores, and increasing your income can take time. But within six to 12 months, you can see results and meet ELFI’s refinancing requirements. By refinancing your loans, you can save money and pay off your debt ahead of schedule.
When you’re ready, you can get a rate quote without affecting your credit score.*
1Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 2/7/2020 and 2/21/2020. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.
*Subject to credit approval. Terms and conditions apply.
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