College is expensive. If you need to borrow money and you exhaust all of your federal financial aid options, you may consider talking to a private student loan lender. But having bad credit could keep you from qualifying for additional financing. If your credit score isn’t as high as it could be, here are three steps you can take to boost your chances of getting approved for a private student loan.
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1. Review Your Credit Report
Your credit score is based on the information included in your credit report. Each of the three major credit bureaus (Experian, Equifax and TransUnion) issue these reports. Under federal law, you can receive one free copy of your report from each of these agencies every year.
Before applying for a private student loan, it’s a good idea to review your credit reports. It’s important to make sure your payments are being reported accurately and that there are no accounts listed that don’t belong to you.
If you spot an error, you have the right to dispute it. All three reporting agencies allow you to submit dispute requests online. If a credit bureau decides that your request is valid, it’s required to correct or remove the information in question. That may raise your credit score a few points.
2. Address the Other Issues Affecting Your Credit
If there aren’t any mistakes on your credit report, something else may be dragging down your credit score. If you can’t figure out why your score is low, it’s a good idea to look at your payment history.
Payments account for 35% of your score, according to the FICO credit scoring model most lenders use. Have you always paid your bills on time? Even a single late payment can dramatically affect your score. If you need a private student loan, it’s important to make on-time payments.
You’ll also need to consider how much of your available credit you’re using. Maxing out three or four credit cards could bring down your score. Paying off your credit card debt and keeping your credit utilization ratio under 30% could help improve your credit.
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3. Consider Getting a Co-Signer
If you have bad credit, finding a co-signer may help you qualify for a private student loan. Your co-signer could be a parent, spouse or another family member. But generally, it should be someone with a high credit score.
Keep in mind that a co-signer assumes responsibility for a loan. If you can’t keep up with your loan payments, your co-signer’s credit score could fall. If you default on your loan, your lender could sue both of you.
If a family member or friend seems reluctant about being your co-signer, a lender may agree to release him or her after a certain period of time. For example, if you make on-time payments for the first two years, your lender may remove your co-signer from the loan. Knowing that he or she has an out might convince a co-signer to help you when you’re in a bind.
Related Article: Top 5 Reasons Why You Shouldn’t Co-Sign a Friend’s Loan
Even if you can qualify for a private student loan with bad credit, you probably shouldn’t rest on your laurels. Ideally, you should aim to raise your credit score as much as possible. Paying bills on time and keeping your credit utilization ratio low can go a long way toward improving your credit score.
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