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Obtaining a student loan with bad credit can often be challenging, but it is possible. If you have bad credit, federal student loans are a great place to start. Except for federal Direct PLUS loans, student loans provided by the federal government do not involve a credit check.
A good credit score, however, is often necessary when applying for private student loans, which are provided by banks, credit unions and online lenders. Most private lenders require applicants to have a minimum credit score in the mid-600s. Even with private lenders, bad credit doesn’t have to rule you out entirely.
Federal student loans with bad credit
Federal student loans are a form of education financing funded through the U.S. Department of Education. You can use the proceeds from federal student loans to help cover expenses such as:
- Supplies and equipment.
- Room and board.
If you have credit problems, federal student loans are typically the best place to start. Most federal student loans do not require a credit check to qualify for financing.
PLUS loans are the one exception; these loans involve a credit check. However, they’re only looking for an adverse credit history. There are no minimum credit score requirements.
Private student loans with bad credit
Private student loans are education financing offered by private lenders such as online lenders, banks and credit unions. Some colleges and universities may also offer private student loans.
With a private student loan, the lender will almost always check your credit as part of the application review process. Securing a private student loan may be challenging when you have bad credit. Bad credit can also impact the interest rate and loan terms you’re offered, making it more expensive to borrow if you qualify.
Many private student loan lenders require a minimum score in the mid-to-high 600s to qualify for financing. However, the lender may allow you to apply for a private student loan with a co-signer if you need help qualifying. However, co-signing for student loans has drawbacks, such as the risk of credit score damage for your loved one.
If you’re considering a private student loan for bad credit, compare offers from multiple lenders to ensure you get the best interest rate and loan terms possible.
Can you get a student loan with bad credit and no co-signer?
Getting a student loan with a co-signer can be a helpful way to open up more loan options for borrowers with bad credit. If you don’t have a co-signer, you still have options. The best option for student loans if you have bad credit is federal student loans.
Having bad credit and no co-signer doesn’t disqualify you from getting a private student loan. However, you may need to do some extra digging to find student loan options that work for you.
How to improve your credit before applying for a private student loan
Because your credit plays a key role in the approval process, it’s wise to get your credit score in the best shape possible before applying for a new private student loan. Better credit may improve your approval odds and help you secure 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. As you review your credit reports, list any inaccurate information and any negative items you need to address. You can claim a free copy of your three credit reports weekly at AnnualCreditReport.com.
- Dispute credit errors. As many as 34 percent of Americans have found at least one error on their credit report. Some credit reporting mistakes have the potential to damage your credit score. If you discover errors on your credit report, it’s wise to dispute them immediately.
- Lower your credit card utilization. A high balance-to-limit ratio on your credit cards can be bad for your credit score, even if you make your payments on time. You can lower your credit utilization rate (and likely save money in interest) by paying down your credit card balances. A credit limit increase is another out-of-the-box way to help you lower your credit utilization if you can’t afford to pay off all of your balances at once.
- Establish positive credit. Adding new positive accounts might benefit you over time if your credit file is thin. You may want to start with accounts you’re likely to qualify for despite having bad or no credit. Secured credit cards or credit builder loans may be worth considering here.
What to do if you can’t qualify for a student loan
If you’re having difficulty finding student loans because of bad credit, all is not lost. Here are some alternatives to consider.
An income-share agreement (ISA) is a student loan alternative that doesn’t require a credit check. Instead of loaning you money based on your credit history, providers will give you funding in exchange for a fixed percentage of your future income — usually between 2 percent and 10 percent — for anywhere between two and 10 years once you start working.
Depending on the agreement and your career results, you may pay more or less than you received. This means you carry some risk, especially if you end up with a high-paying job.
ISAs, which colleges and universities often offer, typically set a salary floor. The salary floor is what your income must be for payments to come due, as well as a payment cap, which is the maximum amount you have to pay.
If you’re considering an ISA, read the fine print and compare the terms to similar options to determine if it’s a good fit for you.
Seek other ways to pay for school
As a rule, it’s best to consider student loans as a last resort for college financing. Take some time to research scholarship and grant opportunities at your school. You can also use scholarship search engines to comb through the millions of scholarships and grants private organizations offer.
If necessary, you may also consider taking some time to work to save up for your next academic year and plan to work part- or full-time while you attend college. This can be challenging with some degree programs, but it might be worth the effort.
Reduce your expenses
It might be worth considering a less expensive school if you qualify for federal student loans but can’t get enough to meet your financial needs. Community colleges can be a great place to knock out general courses before switching to a four-year university to complete your degree.
You can also look for other ways to cut costs, such as living at home or requesting financial help from your family.
The bottom line
It’s entirely possible to get a student loan with bad credit. Your best bet is to start with federal student loans. But if you need private student loans to help finance your education, bad credit could make borrowing money more difficult and expensive.
Take steps to improve your credit as much as possible before applying for financing, such as lowering your credit utilization ratio and disputing errors on your credit report. If you decide to accept an interest rate that you’re not thrilled about now, you can always refinance your student loans in the future.
Frequently asked questions
While there are no minimum credit score requirements for federal student loans, private student loan lenders typically require you to have a credit score in the mid-600s.
No, most federal student loans do not have credit score requirements. Therefore, the FAFSA application process does not include your credit information.
Not necessarily. For many federal student loans, the requirements include demonstrating financial need, being a U.S. citizen or eligible noncitizen and be enrolled in an eligible degree or certificate program. Even for federal student loans that are not based on financial need, such as the Direct Unsubsidized loan, eligibility requirements must still be met. Private student loans often have credit score requirements.