Student Loans for Bad or No CreditFebruary 11, 2021
Last Updated on November 9, 2022
For many students, applying for student loans to help pay for college is a necessity. Moreover, because federal student loans have borrowing limits that don’t always cover all educational expenses, and many people have to take out private student loans, as well.
According to the Institute for College Access and Success, 62% of college seniors who graduated from public and private nonprofit colleges had student loan debt.
But is credit required for student loans? That may be a concern for many students, especially if they 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 without credit shouldn’t be a problem. And if it is, there are ways to get the financing you need.
Federal Student Loans Are Best for Students With Bad or No Credit
If you’re looking to get a student loan but don’t have a credit history, federal student loans are the way to go.
With federal undergraduate loans, there’s no credit check required at all. This means that everyone who’s 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 who has 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 to 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, however, the Department of Education does run a credit check.
Even then, you don’t need to worry if you don’t have a credit history. The only things they’re looking for are serious 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 who can qualify 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 history, 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.
That doesn’t mean your chances of getting a private loan without a credit history are gone completely. Most private lenders allow you to apply with a cosigner, who can boost your odds of getting approved. Some lenders may also consider your application even without a cosigner, however, you’ll likely pay higher interest rates than you would in other circumstances.
Do All Student Loan Applications Require Credit Checks?
If you’re applying for federal student loans, chances are, 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.
If you’re borrowing private student loans, however, your lender will most likely run a credit check, so it’s important to be prepared. 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?
Your best bet when applying for student loans if you’re aiming for minimal credit score impact 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.
Keep in mind, 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.
How to Shop for Student Loans With Little to No Credit History
If you’ve ever wondered, “Can I get a student loan without credit history?” the answer is yes. Federal student loans don’t require you to have a credit history, so if they cover all you need, it’s not something you need to worry about.
While private student loans do require a solid credit history to get approved, you can still qualify if you add a cosigner with good or excellent credit. Research various lenders and consider prequalifying to determine which may be the best fit for you. If you’re seeking a reputable lender for your private student loans, then be sure to try ELFI’s Student Loan Repayment Calculator.*
If you’ve taken out a loan with a high interest rate and your credit score improves later, then consider student loan refinancing as an option to potentially lower your interest rate.
Improving Your Credit Score Before Applying for Private Student Loans
If you’re planning to apply for student loans in the near future, then be sure to take as many actions as possible to improve or maintain your credit score. While significantly improving your score may take time, here are a few options to keep in mind if you could use a boost:
- 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’re making. 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 at all, then 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 is a reputable lender with a 4.9-star Trustpilot rating as of February 5, 2021. You can explore our private student loan offerings or contact our Customer Care team to learn more today.