You can refinance your student loan even if you have bad credit.
Refinancing your student loans with bad credit can be a challenge, especially if you are trying to refinance through a private lender. 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.
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 to secure a lower rate and better loan terms as well.
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.
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
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
Consolidate your federal loans
Loan consolidation combines your federal student loans into a new, individual account. You may be able to extend your repayment period and lower your monthly payment. Best of all, consolidating helps you retain your valuable federal student loan benefits.
Lower your payments
Applying for an income-driven repayment plan is another alternative to refinancing your federal student loans. The U.S. Department of Education offers four income-driven repayment plans. If you qualify, your new monthly payment amount will be based on a portion of your discretionary income, so it may be possible to lower your monthly payment amount without the need to refinance your debt.
Article courtesy of Bank Rate written by Michelle Black.