Can I refinance my student loans with a credit score of 600? – Forbes advisor


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Trying to qualify for student loan refinancing can feel like a gruesome cycle.

You are likely looking for a refinance to save money on your student loan – the same loans that sabotage your finances and don’t question you for a student loan refinance. If you’re having trouble making your payments, your creditworthiness has likely suffered as a result.

How low can your credit score be while still qualifying for student loan refinancing?

While you may qualify for a mortgage or credit card with a credit rating of 600, you are likely not eligible to refinance your student loans. According to Forbes Advisor’s analysis of the best student loan lenders, the most common minimum credit score among lenders who disclosed their requirements was 670 or 680. The lowest minimum score was 650 among lenders like SoFi and Earnest.

If your score falls below this threshold, you can improve your chances of getting the student loan refinance. Read on to learn more about your options.

How To Improve Your Credit Score

There are several ways that you can increase your score to become a better refinance applicant.

1. Pay on time

The most important factor in a credit score is your on-time payment history, which is 35% of your credit score. If you pay your bills on or before the due date each month, your score will improve over time. If you accidentally miss a payment, please pay it ASAP. Lenders typically do not report payments that are less than 30 days late.

2. Be careful how much credit you use

The second largest factor is your credit utilization, or the percentage of your credit card’s total credit line that you are using. The credit utilization rate applies to both individual cards and the sum of all your credit cards.

Credit card providers don’t show your occupancy rate on your statement, but it’s easy to calculate. See the current balance on your credit card and divide it by the total credit limit. For example, if the current balance is $ 1,500 and the total credit limit is $ 5,000, your credit utilization rate is 30%.

The ideal loan utilization rate is 10% or less. So if your percentage is above that, try paying back the balance. You can also call the credit card provider and ask them to increase your credit limit, which is an easy way to reduce your usage.

3. Do not apply for a new loan

Also, if you want to improve your credit score, avoid opening new accounts. Each new account reduces the average age of your credit score, which is 15% of your credit score. Also, every time you apply for a new loan or credit card, it counts as a hard request on your credit report. This can temporarily reduce your score.

If you have a major negative event on your credit report, such as: For example, a bankruptcy or a loan that has gone to debt collection, all you can do is wait. Most negative items will fall off your credit report after seven to 10 years.

Fortunately, the impact of these events on your creditworthiness is minimized over time. For example, a bankruptcy from five years ago will affect your creditworthiness much less than a bankruptcy from last year.

Make sure that you don’t apply for refinancing until your score is closer to 675 or more, as the credit score you see online at your bank or on numerous websites that offer free reviews may not be exactly the credit score that is Lender sees. There are dozens of iterations of credit scores. So if a source says your credit score is 650, the number the lender sees might be 645.

Get a co-signer

Some lenders will approve a borrower with less than excellent credit if they have a co-signer with good credit. A co-signer is someone who agrees to make payments if you default on the loan.

A co-signer does not have to be a direct relative or spouse; it can be anyone you know. The only condition is that they have a good credit rating and a stable income. If you choose a co-signer with a bad credit profile, you will not be approved for the loan.

Asking someone to co-sign a loan is no small favor. This will affect your credit score and the loan will show up on your credit report until you pay it off. This can make it difficult for them to qualify for their own loans.

Alternatives to refinancing student loans

If your credit score isn’t high enough to get refinance, there are other ways you can save money on your student loan repayments.

Sign up for automatic payments

If you are not entitled to refinancing your student loan, you can still save interest. Both private and government student loan providers offer a small interest discount when you sign up for automatic payments. The discount is usually 0.25%, but it may depend on the individual lender.

Visit your lender’s website or contact the customer service department to sign up for this service. Another benefit of signing up for automatic payments is that you don’t have to worry about due dates and late payments.

Use home equity

If you are a homeowner, you can use the equity in your home to pay off your student loans. To qualify, you need at least 20% of the home equity.

The two main options for this strategy are a home equity loan and a home equity line of credit (HELOC). The interest rates on HELOCs and home equity loans are relatively low, and both loans are easier to qualify than a student loan refinance.

The disadvantage of either option is that your home becomes a security for the loan. If you default on the home equity loan or HELOC, the bank can foreclose and confiscate your home.

A cash out refinance is another option if you have more than 20% equity in your home. This involves refinancing your mortgage into a new loan and receiving a check from the lender for any equity over 20%. You end up with a larger mortgage than you had before the payout.

Lower your monthly payment

If you have a government student loan, you may be able to sign up for an income-based repayment plan (IDR). Choosing either of these plans will likely lower your monthly payment, which can alleviate your cash flow concerns.

For example, if you have a credit card balance with a high interest rate, reducing your student loan payment can put more money on your credit cards. This can end up saving you more money in total interest.

Bringing student loans out of default

If you’ve defaulted on federal student loans, a rehabilitation procedure can help get them out of default. You need to make nine consecutive payments. After that, the default value will be removed from your credit report. You can also sign up to consolidate your student loans, which will get you out of default faster but not clear the defaults from your credit report.

Private student loan borrowers should contact their lenders directly to see what their options are.

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