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For most types of loans, your credit score has a significant influence on your ability to qualify for the loan and the interest rates you receive. And while federal student loans don’t have these requirements, a private student loan lender will always consider your credit score.
While you can usually get around a low credit score by adding a cosigner to the loan, it’s still important to understand how your credit score factors into the student loan application process.
In this article, we’ll review the credit score requirements for federal and private loans, explain why your credit score is considered, and outline some strategies to improve your chances of approval for a student loan.
In this guide:
- What credit score do I need for a federal student loan?
- What credit score do I need for a private student loan?
- What credit score do I need to refinance student loans?
- Student loans and credit scores FAQ
What credit score do I need for a federal student loan?
Students should apply for federal student loans before turning to private loans. Not only do federal student loans have more benefits, like forgiveness programs and income-driven repayment plans, but they also have fewer credit requirements.
Here’s a breakdown of credit requirements for all federal student loans:
|Federal Loan||Minimum Credit Score||Credit History Requirements|
|Direct Subsidized Loan||None||None|
|Direct Unsubsidized Loan||None||None|
|Grad PLUS Loan||None||No adverse events|
|Parent PLUS Loan||None||No adverse events|
|Direct Consolidation Loan||None||None|
When the government passed the Higher Education Act of 1965, it made it clear that it had a responsibility to offer students affordable financial aid so that they could receive a college education. Since most high school students don’t have an established credit history, a minimum credit score was never put in place to determine eligibility for federal student loans.
Even though federal loans are easier to obtain than private student loans, most federal loans have lower annual and aggregate limits than private student loans. The annual limit for a federal student loan for an undergraduate student is between $5,500 and $12,500, depending on if you’re an independent or dependent student.
The limit for graduate students is $20,500 for a Direct Unsubsidized Loan, and the limit for a Direct PLUS Loan is the cost of attendance minus any other financial aid.
There is no minimum credit score to receive a PLUS Loan. Instead, the government will check for the following on your credit report:
- Loan balance of more than $2,085 that is 90 days late
- Loan in default
- Debt discharged in bankruptcy
- Tax lien
- Wage garnishment
- Write-off of a federal student loan
If you have had one of these adverse events on your credit report within the past five years, then you may have to explain to the U.S. Department of Education what caused the event. They will determine if your reason is sufficient and if you qualify for a PLUS loan.
If the reason doesn’t satisfy their requirements, you may have to add an endorser to the loan, which is similar to a cosigner. An endorser will become legally responsible for the loans if you default.
To check your eligibility for federal student loans, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA). If you reach the annual or aggregate federal loan limit, you can apply for a private student loan to fill in the gaps. If you need a private student loan, your credit score will become a factor.
What credit score do I need for a private student loan?
Unlike federal student loans, private student loans have strict credit score requirements. As for-profit institutions, private lenders put a lot of effort into determining your ability to repay your loan—and checking your credit score is a great way for them to do this.
Most credit scores range from 300 to 850, with the higher range being reserved for those who have demonstrated responsible credit behavior, such as repaying old loans in full and on time. So, you can understand why most lenders require a minimum credit score between 600 and 700 to be approved for a private student loan.
If you don’t have a credit score over 600, you’ll likely need to add a creditworthy cosigner to your loan. When you do this, the lender will use the cosigner’s credit score and history to determine eligibility.
Here are the minimum credit scores to get a private student loan from some popular lenders:
|Lender||Minimum Credit Score|
Your credit score is one of several factors that a lender considers. So, it’s important to note that even though you may meet the minimum credit score requirement with a lender, that doesn’t guarantee that you’ll be approved.
Here’s a breakdown of how likely a borrower is to be accepted for a private student loan by credit range:
- 649 or lower: Your options in this credit range will be limited. Most lenders will expect a cosigner to be added to the loan to be approved. While the options available will be limited, you can check out our picks for bad credit student loans.
- 650 to 690: Borrowers will have more options in this section, but will still be better off adding a cosigner as approval will likely only be for loans with higher interest rates.
- 691 to 720: You’ll have a chance with most lenders in this credit range, even if you don’t add a cosigner to your loan.
- 721 and higher: With a credit score in this range, you can consider all of the best private student loans and have the highest chance of receiving the lowest interest rates.
What credit score do I need to refinance student loans?
When you refinance student loans, you’re taking out a new private student loan and using it to pay off any existing student loans that you have. In most cases, borrowers refinance to lower their interest rate or monthly payment.
Since this process is offered by private lenders, you’ll need to go through a credit check and meet certain credit requirements set by the lender to be approved. Most lenders require applicants to have good or excellent credit. If you don’t meet the requirements set by the lender, you can add a cosigner that does to increase your chances of approval.
If you have federal student loans, refinancing will convert them into private student loans. Refinancing will also mean relinquishing federal benefits like income-driven repayment plans, long forbearance periods, and loan forgiveness programs.
Here are the credit requirements from some popular student loan refinancing lenders:
|Lender||Minimum Credit Score|
|Citizens Bank||Not disclosed|
Student loan and credit score FAQ
Why do lenders check your credit?
A credit report is like a financial report card. It shows every loan, line of credit, and credit card you’ve ever had. It will also show every credit application you’ve made for the past two years.
And if a credit report is a report card, then a credit score is like a GPA. It’s a single number that easily shows how trustworthy you are to lenders. Credit scores range from 300 to 850.
Before approving your loan application, lenders view your credit score to determine if you’re a responsible borrower. A credit score is one of the best indicators of reliability. If you’ve missed payments or defaulted on a loan, that will be reflected on your credit report.
The following factors make up a credit score:
- On-time payments: 35%
- Credit utilization: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
There are two main companies that compile information from the three credit bureaus to make up credit scores: FICO and VantageScore. FICO scores are used in more than 90% of cases. If you’re viewing a free credit score, you’re likely seeing the VantageScore and not the FICO score.
Both companies have similar scoring algorithms, but there may be a slight discrepancy between the two. The difference is usually less than 20 points.
How do I find my credit score?
There are three credit bureaus that compile credit information: Equifax, Experian, and TransUnion. FICO and VantageScore take information from those three companies and turn them into credit scores.
There is no one credit score. In fact, each consumer has dozens of credit scores because there are different scoring algorithms for different types of loans.
You can find a free credit score from sites like Credit Karma. Many banks and credit card providers also offer free credit scores, even if you’re not a customer. You can sign up to get weekly or monthly notifications about your credit score to see how it’s changed.
Should I improve my credit score before applying for a student loan?
If you need to take out a private student loan, increasing your credit score could help you get approved and receive a lower interest rate.
Improving your credit score is straightforward. First, make sure to pay all your bills on time. Any late payment past 30 days will appear on your credit report and could cause your credit score to drop by as many as 180 points.
Avoid applying for new credit accounts because they can decrease your average credit age. Also, too many new accounts look suspicious to a lender. View your official credit report at AnnualCreditReport.com and see if there are any errors or mistakes which could drag down your score.
It can take several months to fix or build your credit. If you don’t have that time, adding a cosigner with a better credit score can help improve your odds of approval.
Can a cosigner help you qualify for a private student loan?
Adding a cosigner will almost always help you get approved for a loan. And even if you can qualify for a student loan without a cosigner, including one with your application may help you get a lower interest rate than applying by yourself.
A cosigner can be any adult who meets the lender’s requirements. They usually need a good credit score, a salary above a certain threshold, and U.S. citizenship or permanent residency.
Most students have their parents cosign a student loan, but you can ask anyone you know, such as a relative, mentor, or close family friend. For example, if your parents don’t have good credit, then a relative may be a better option.
Does cosigning a student loan impact the cosigner?
When someone cosigns a loan, it will appear on their credit report. It shouldn’t negatively impact their credit score unless the original borrower misses payments or defaults on the loan.
Cosigning will impact the cosigner’s debt-to-income (DTI) ratio, which is the total monthly debt payments divided by the total monthly gross income. Cosigning a loan could make it harder for them to qualify for a mortgage or other large loan. And if the borrower defaults, the lender will come after the cosigner for the remaining balance.
If you need a cosigner, see if you can find a lender that allows you to release the cosigner after meeting certain repayment conditions. Cosigner release is when the lender removes the cosigner from the loan, so it no longer shows up on their credit report.
If the lender does not offer cosigner release, then the only way to remove the cosigner from the loan is to refinance with a new lender.
What other requirements do private lenders have?
A good credit score isn’t the only factor that private lenders look at. The next most important element is the borrower’s annual income, which will show if they can afford to repay the loan.
Even if a student has good credit, they may not qualify for private loans by themselves because their income is too low or too irregular. In that case, they would still need a cosigner with good credit and a stable job. The minimum income requirement varies depending on the lender.
Many private lenders also require that the student be a US citizen or permanent resident to qualify. If you have DACA status, you may be able to qualify for a private loan with a cosigner who is a US citizen or permanent resident. Also, most international students who want to apply for a private loan will need a cosigner who is a US citizen or permanent resident.
You will also have to show how many credit hours you plan to take per semester. Most lenders only approve borrowers who are at least part-time students, which usually entails taking two or three classes per semester. There are a handful of lenders that only accept full-time students as borrowers.
If you are below part-time, then you’re less likely to graduate. Not graduating can make it harder to find a high-paying job, making it harder for you to repay your student loans.
Here are some other student loan eligibility requirements:
- Attending an approved school
- Majoring in a certain field of study
- Not exceeding the debt-to-income ratio
Before you apply for a private loan, read through the lender’s requirements and make sure you meet them.
Author: Zina Kumok