Skip to Main Content

How to refinance student loans with bad credit

Woman works with a stack of books
fizkes/Shutterstock
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

Student loan refinancing is the process of taking out a new loan with a private lender and using it to pay off your existing student loans, often to get a better interest rate. If you have bad credit, however, refinancing your student loans through a private lender may be a challenge. Some lenders will charge you more, while others might deny your new loan application outright.

Each lender decides for itself what it considers to be a bad credit score. In general, if your FICO Score is below 580, a lender may consider your credit score to be “poor.” A FICO Score between 580 and 669 is “fair,” and it might still give you problems when you apply for financing. However, even with credit challenges, there may still be some student loan refinancing options available to you.

What credit score do you need to refinance student loans?

Lenders often consider their credit score requirements proprietary information, so it’s hard to pin down an exact credit score requirement to refinance loans. As a rule of thumb, anything over 650 will likely give you your best shot at qualifying.

With that said, even if you meet the minimum requirement, you’ll face higher interest rates with poor credit. If you have a credit score of 650, you may get in the door with a lender — but your interest rate may be in the double digits.

If lenders don’t advertise their credit score requirements, get prequalified with a few companies. This will give you a sense of where your credit score puts you in terms of eligibility and interest rates.

How to refinance student loans with bad credit

Refinancing student loans can be a great potential way to save money on your educational debt. Yet many private lenders require a minimum credit score in the mid- to high 600s to refinance your student loans. If you’re worried that your score won’t reach this threshold, try these tips.

Apply with a co-signer

Adding a loved one as a co-signer on your loan application might help you qualify to refinance your student loans when you have credit issues. Of course, your loved one needs to have good credit (or better) for this approach to work. If your co-signer’s credit is good enough, they might help you secure a lower rate and better loan terms as well.

On the negative side, co-signing could backfire for your loved one, as it puts their credit reports and scores at risk. If you can’t repay your refinanced student loan as promised, your co-signer’s credit will suffer just as much as yours from late payments or a loan default.

A co-signer is also liable for the debt — just as much as if they were the sole borrower. Even if you always pay on time, the presence of the co-signed student loan on your loved one’s credit reports might make it difficult for them to borrow again in the future.

Improve your credit score

Credit scores aren’t the only detail that lenders consider when you apply for a loan. But they’re certainly among the most important factors.

Working to improve your credit score before you apply to refinance your student loans is smart. Here are some potential ways to give your credit score a boost:

  • Check your credit reports for errors. You can claim a free credit report from each credit bureau via AnnualCreditReport.com once every 12 months. If you discover inaccurate information on these reports, you can dispute it with the appropriate credit bureau. Negative, inaccurate data on a credit report can hurt your credit score, so you should never ignore this problem if it happens to you.
  • Always pay your bills on time. You can set up automatic payments and schedule reminders on your smartphone to help. Payment history is worth 35 percent of your FICO Score.
  • Reduce your credit card balances. Your credit utilization ratio (aka your balance-to-limit ratio) has a big impact on your credit scores. Paying down credit card balances will generally lower your utilization rate and may improve your credit score by extension.
  • Add alternative credit to your reports. Programs like Experian Boost allow you to opt in and add certain types of information (like a mobile phone or utility account) to your credit reports. If you regularly pay these bills on time, adding them to your reports might be good for your scores — especially if your credit files are thin and you have few other accounts.

Shop around with lenders

Anytime you need to borrow money, it’s a good idea to shop around for the best deal available. Comparing offers from multiple lenders has the potential to save you a significant amount of money over the life of your loan.

Some private lenders will allow you to check your interest rate with only a soft credit inquiry. This type of loan preapproval process is great because it lets you compare multiple refinancing options without any potential credit score damage.

Improve your cash flow

Lenders often consider your debt-to-income ratio (DTI ratio) when you apply for a new loan. DTI is a comparison of the income you earn each month (pretax) versus your total monthly debt payments.

When you owe too much money compared to your income, lenders will be hesitant to loan you more. But if you can improve your cash flow — by paying down debt or earning more money — you may be in a better position to qualify for student loan refinancing.

Alternatives to refinancing

Student loan refinancing isn’t the right fit for everyone. If bad credit keeps you from refinancing, or if it prevents you from getting a lower interest rate than you’re currently paying, an alternative approach may be best. Some options include:

  • Consolidate your federal loans. A Direct Loan Consolidation combines your federal student loans into a new, individual account. You can extend your repayment period and lower your monthly payment while retaining your valuable federal student loan benefits. With that said, loan consolidation will not save you any money, since it will not change your interest rate.
  • Lower your payments. Applying for an income-driven repayment plan is another alternative to refinancing your federal student loans. If you qualify, your new monthly payment amount is based on a portion of your discretionary income; depending on your situation, your monthly payment might be $0.
Written by
Michelle Black
Contributing writer
Michelle Lambright Black is a credit expert with over 19 years of experience, a freelance writer and a certified credit expert witness. In addition to writing for Bankrate, Michelle's work is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others.
Edited by
Student loans editor