People who apply for private student loans often do not have the type of credit history that lenders value.
Young people often have not had much time to build a credit history at all; other older students might be going back to school to find jobs that pay higher wages because they have been stuck in a negative cash flow for years, which often means abuse of credit.
All is not lost, however. There are some avenues that can lead to success in this quest. If you have almost no credit history, or a poor one due to a high debt-to-income ratio or late payments on other loans, you can still find a lender to fund your dream towards a diploma.
Neutralize Bad Credit with a Cosigner
One common option is to apply for a loan along with a sterling cosigner. Many students use their parents as a cosigner; others ask a family member or friend to cosign.
Find someone with a credit score above 700 who understands what being a cosigner entails. Using such a cosigner will dramatically improve your chances of being approved for a private student loan.
Use Online Student Loans
Another option is the myriad of online lenders that give private, unsecured loans to students with bad credit. Shop around carefully for one that has the lowest interest rates, fees and other charges. Some of these online lenders are legitimate, others are not. Some charge outrageous fees and interest rates, so don’t apply to the first one that promises approval.
You should also check with the Better Business Bureau to make sure that the bad credit lenders you are considering are respected and trustworthy. If not, run!
Improve Your Credit Score
A third option for people with bad credit to get a private loan is to improve your credit score before applying for a loan. Most people do that in these ways:
- Obtain a free credit report and correct any errors that are on your record
- Get a student credit card and make payments on time to raise your score
- Pay off existing debt to boost your score
In this case, there is no substitute for time in raising your credit score to improve your chances at getting a private loan. You might need to delay your enrollment a semester or two to gather the funds needed to pay tuition and fees through loan approval. That year could make all of the difference in your credit score, resulting in lower interest rates for many years to come.
Other Private Student Loan Options
It is often difficult to be patient when one is ready to enroll in college, but if you have poor credit, you might not have any other choice.
Students should also consider enrolling part-time and accomplishing two goals with that plan:
1) Lowering the amount that is needed in any loan given
2) Freeing up time to work (perhaps doing work study on campus) and boosting or creating a credit history