ARE THERE STUDENT LOANS FOR BAD CREDIT?
Yes. Some private and federal student loans may not use credit scores for eligibility. A cosigner with good credit may also help you qualify for student loans for bad credit. Direct Student Loans are not based on your credit history or credit worthiness. However, you will not be able to secure one if you are in default on another federal student loan. The same is also true if you owe a refund on a Title IV grant such as the Pell grant.
Credit does play an important role in determining eligibility for student loans for bad credit. This includes, private student loans, Direct PLUS loans or Direct Grad PLUS Loans. If you have bad credit, you may be able to secure one of these loans if you have a co-signer.
In fact, students looking to get a private student loan will almost always need a cosigner. Private student loans do look at income and debt when determining eligibility. In fact, most students will not meet the minimum income requirements which is why a co-signer is needed.
You may apply for federal student loans that do not require credit eligibility by filing out a FAFSA. Another option to consider may be to have a cosigner who has good credit. If you are looking at private loans without a cosigner, you may consider student loans that don’t look at credit history to determine eligibility.
WHAT IS ‘GOOD CREDIT’ vs ‘BAD CREDIT’?
There’s no hard and fast answer to this question. Private student loan lenders establish their own underwriting criteria for the loans they offer. Underwriting refers to the minimum criteria a lender sets for a borrower (you) to qualify for a particular loan program. These criteria may include your credit score based on reporting from one (or more) of the three major credit bureaus. Bad credit may also be the same as no credit.
Lenders look at your credit report to identify any red flags. This may include your history of collections and judgments. Also, your payment history, indebtedness and other factors. They then determine whether or not to make an offer of credit. These credit criteria apply to co-signers as well. Each lender sets their own criteria.
If you are looking to get a Grad PLUS or Parent PLUS loan, you may likely be approved as long as you have no adverse credit history. In this case, adverse credit history means a default determination, bankruptcy discharge, foreclosure or repossession. It could also include a tax lien or wage garnishment. A write off of a Title IV debt within the last five years or, a current delinquency of 90 or more days on any debt would also be looked at.
Good credit is essential to your future. You’ll need it for other things besides student loans for bad credit. It is also crucial to get low interest credit cards, low mortgage rates, and more. If you have bad credit, you should begin repairing it immediately.
5 Ways to Improve or Earn Credit
#1 Get A Credit Card
On your 18th birthday, you are eligible to get a credit card. At this time, you may have no credit, which is almost as bad as bad credit. You might need payment history otherwise many lenders may not consider you.
If you are not yet 18, your parents could add you to their credit cards as an authorized user. You may make purchases but the paying the bill is the responsibility of your parents. Because your name is also on the card, you can build your credit score. Think of it as a credit score collaboration!
#2 Keep Up With Your Payments
The first step to building credit is to keep up with your payments. When you turn 18, you may have to start paying gas bills, electric bills, cellphone bills, and more.
When lenders are reviewing your credit score for a new credit card, they will see how consistent you are in making payments. Your payment history makes up for 35 percent of your credit score. For example, if you’ve never missed a payment, you may have a credit score in the high 700s or low 800s. Miss a payment, your score may drop by 100 points. So when a bill is due on the 20th, pay it on the 20th or, even better, the day before.
Do that every month – your credit report will love you.
#3 Watch Those Balances
One important part of your credit score is how much you’re actually using. To keep your credit score high, keep those balances low. Don’t just make the minimum payment but pay as much as you can. This shows potential future lender that you’re reliable and could pay off your debts. It’s a major factor in determining credit scores.
#4 Do Not Get Too Many Cards
Too many credit cards equal too much debt. Opening new accounts in a short period of time could dramatically affect your credit score. Credit agencies consider this behavior as a credit risk especially for student loans for bad credit.
#5 Get a Federal Student Loan
You don’t have to go the credit card route to build your credit. One creative way is to check out federal student loans. Since federal student loans do not require a credit check, you can build your credit by making your loan payments on time.
WHO COULD COSIGN FOR A LOAN?
Any creditworthy individual may cosign another loan. If the cosigner meets the citizenship and credit requirements, that person may cosign. Often, a student will ask a parent or other family member with good credit to cosign or endorse their loan. As long as the cosigner meets the citizenship and credit requirements, that person can cosign for student loans for bad credit.
WHAT ARE THE RESPONSIBILITIES OF A COSIGNER?
The cosigner may repay the loan in the event that the primary borrower doesn’t. As such, a cosigner may assume all the same obligations of the primary borrower. These obligations may include paying the debt in full and paying it on time.
It’s important to consider your ability to assume the financial responsibility of repaying the student loan for bad credit in the event the borrower can’t.
A lender may allow the cosigner to be released from the loan if the student makes a certain number of loan payments and meets specific credit requirements. Release from the cosigner obligation usually involves:
- The student making a number of regular on time payment
- Meeting other credit criteria such as minimum income
- A satisfactory ratio of debt to income.