Most federal student loans don’t have credit score requirements, but private student loans do. The minimum allowable credit score for a student loan from a private lender varies, with most lenders looking for a score in the mid-600s or higher.
You’ll also need a decent credit score if you want to refinance your student loans for better rates. If you don’t have good credit, adding a cosigner to your application could help you qualify for a loan or access more competitive rates.
- Why does your credit score matter for a student loan?
- What’s the minimum credit score requirement for private loans?
- What impact does a cosigner have when applying for loans?
- What’s the minimum credit score requirement for refinancing?
- How can you improve your credit score?
Why does your credit score matter for a student loan?
Private lenders rely on your credit score to assess your risk as a borrower. A good credit score suggests you’ve handled debt responsibly in the past, while a poor credit score indicates that you’re a riskier candidate for a loan.
While there are various types of credit scores, lenders often rely on the FICOⓇ Score, which ranges from 300 to 850. Your FICOⓇ Score is based on your credit history, and it’s made up of the following factors:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
If you have a history of late payments, your credit score will take a hit. If you have a diverse mix of credit accounts and pay all your bills on time, you may have a good or excellent score. On the FICOⓇ scoring range, a good score starts at 670, a very good score starts at 740, and an exceptional score is 800 or higher.
While your credit score can make or break your application for a private student loan or student loan refinancing, it doesn’t come into play when you borrow most federal student loans. Federal loans such as Direct Subsidized and Unsubsidized Loans have no credit requirement.
“Eligibility for federal student loans does not depend on your credit score or credit history in any way,” explained Mark Kantrowitz, financial aid expert and publisher and vice president of research at SavingforCollege.com. “The interest rates also do not depend on your credit score.”
Your credit does matter when you apply for federal PLUS loans for graduate students and parents, but the requirements are fairly lenient. You simply can’t have “adverse credit,” which refers to recent delinquencies or other negative marks. If you have adverse credit, you may still qualify for a loan if you apply with an endorser (similar to a cosigner) and undergo credit counseling.
What’s the minimum credit score requirement for private student loans?
If you want to borrow a private student loan, your credit score is a deciding factor.
“Private student loans depend on the credit scores of the borrower (and cosigner, if any),” said Kantrowitz. “The credit scores affect both eligibility for private student loans and the interest rates on the loans.”
The minimum credit score requirement for a private student loan varies by lender. Some lenders don’t disclose their credit score minimum, instead stating that they look at a variety of financial factors, including your credit report, income, and debt-to-income ratio.
Ascent, College Ave, Custom Choice, and Sallie Mae, for example, are all lenders that don’t disclose their minimum credit score requirement. Some lenders are more transparent, though.
MEFA and INvestEd, for instance, both look for a credit score of 670 or higher. Most private lenders offer repayment terms between five and 15 years and don’t charge origination fees, though the specifics vary by lender. If you miss payments, the lender may charge a late fee.
What impact does a cosigner have when applying for student loans?
If you don’t have the necessary credit score for a student loan, you still have options. You might qualify by applying with a cosigner — an individual who agrees to share responsibility for the loan.
Your cosigner will need to meet the lender’s credit and income requirements for a loan. Some lenders, such as Ascent, may adjust the credit requirement for a cosigner based on the primary borrower’s credit score.
A cosigner can be any trusted individual who’s willing to help you get approved for a loan. You might ask a parent, grandparent, other relative, or family friend to cosign your student loan.
“Even if a borrower can qualify for a private student loan on their own, it may be worthwhile for them to apply with a creditworthy cosigner,” said Kantrowitz. “Even if the credit scores are the same, it may yield a slightly lower interest rate, since having two fish on the hook is lower risk than just one.”
Keep in mind, however, that how you manage your loan will impact your cosigner’s credit. Late payments could damage both your and your cosigner’s credit, making it difficult for either of you to access other types of financing in the future. And if you find yourself unable to make payments at all, your cosigner will have to pay on your behalf.
You may be able to remove your cosigner from the loan later if your lender offers cosigner release. Some lenders will let you apply to remove your cosigner after you’ve made 12 to 48 consecutive, on-time loan payments.
What’s the minimum credit score requirement for student loan refinancing?
If you got stuck with a high interest rate on your student loans, you may be able to lower it through refinancing. However, you’ll need excellent credit to snag the best rates.
As with private student loans, the minimum credit score for refinancing will vary by lender. Most require a good credit score of 670 or higher, while some want to see a minimum in the 700s.
INvestEd, for example, requires a score of 670. Brazos Higher Education requires a minimum score of 720, though it accepts scores starting at 690 if you apply with a qualified cosigner. Most lenders don’t charge any fees to refinance student loans and offer repayment terms between five and 20 years.
Student loan refinancing vs. federal student loan consolidation
Note that refinancing isn’t the same as federal student loan consolidation. Consolidation allows you to combine multiple federal student loans into one new loan. Refinancing is a process that you can use to combine both private and federal student loans into one. However, refinancing federal loans will turn them into private debt and make them ineligible for federal protections, such as income-driven repayment, forgiveness programs, and loan rehabilitation.
How can you improve your credit score for a student loan?
If you don’t need to borrow a new or refinanced student loan immediately, it may be worth taking some time to improve your score. A strong credit score can increase your chances of approval and lead to lower rates, which could save you money over the life of your loan.
Here are some steps you can take to improve your credit:
- Pay your bills on time. Your payment history has a major impact on your score. Making on-time payments will increase your score, while late payments will drag it down.
- Reduce your credit utilization ratio. Your credit utilization also affects your score — that is, the amount of your credit limit you use on revolving credit accounts such as credit cards. Work to pay down any high-balance accounts to improve your score. Some experts recommend consumers keep their credit utilization ratio below 30%, but according to FICO, a utilization below 10% is ideal.
- Become an authorized user. If you’re just starting to establish credit, it can help to become an authorized user on the credit card of someone you trust. You can benefit from the cardholder’s responsible credit habits without having to use the card yourself.
- Dispute errors on your credit report. Credit reporting bureaus don’t always get it right, so it’s worth reviewing your credit report for any errors. You can request free weekly copies from the three major credit bureaus — Equifax, Experian, and TransUnion — from AnnualCreditReport.com through the end of 2023. Dispute any mistakes you find. If your dispute is successful, the negative marks will be removed, which could bump up your score.
As you work on improving your credit, you can monitor your score with a free service like Experian Boost or a paid plan at myFICO.com. Some credit card companies will also show you your credit score for free. Checking in with your credit score regularly can help ensure the steps you’re taking are working and keep you on track toward your goals.