How Does My Credit Score Affect My Ability to Get a Student Loan?

The yearly cost for a college degree can total $50,000 or more, a price tag that requires most students to turn to student loans. Unfortunately, many students worry that their credit score could stand between them and the loans they need to get to graduation.

But there’s good news: Having a negative credit score or a lack of credit history by no means prohibits you from receiving loan approval. Instead, credit may determine what types of loans and interest rates are available to you.

Here are options for students concerned about credit:

What if I Have a Good Credit Score?

If you do have a good credit score, first of all, congratulations! Keep up your good habits.

Now let’s talk about getting loans.

Federally funded loans are available for students with good or bad credit scores.

Start by filling out the Free Application for Federal Student Aid (FAFSA) to find what type of federally funded financial aid you are eligible to receive. Federal loans have low interest rates and do not need to be repaid until six months after graduation.

The advantage of having a good credit score is that if there are additional expenses not covered by federal loans, then you are a promising candidate for private student loans. Private lenders can offer students with good credit low interest rates and feasible repayment plans.

What if I have Zero Credit History or a Low Credit Score?

Students can receive subsidized Stafford loans and Perkins loans (which are both federal loans) without completing credit checks; this way a lack of history or a negative history does not affect eligibility. Your loan approval and interest rate will not be based on credit scores. These loans do not require co-signers either.

One quick thing to remember: If you do have old federal student loans, you will need to make sure the payments are current before applying for another one.

Do the Credit Scores of My Parents Matter?

Parents can apply for loans to pay for your education through the Federal PLUS (Parent Loans for Undergraduate Students) program and unsubsidized Stafford loans.

While these PLUS loans aren’t strictly based on credit scores, an adverse credit history of a parent can keep them from being approved for this type of loan. The type of adverse history that could prevent approval for PLUS loans includes 90 days delinquency on payments or a loan in default. However, if a parent’s credit score is low for another reason, such as the occasional late payment, they may still be eligible.

If PLUS loans are denied, parents may receive unsubsidized Stafford loans — which are not based on credit history, but do require that interest is paid while students are in school.

Are There Other Options?

Don’t give up on your search yet.

If you find a co-signer with a good credit score, private loans are another option. A co-signer can be a parent, guardian or friend who agrees take over the loan if you are unable to make payments. Using the co-signer’s positive credit history will enable you to receive better loan terms, like lower interest rates and longer payment plans.

There are a few private student loans that are not contingent upon credit scores, but use criteria like grades, major and college reputation to determine eligibility.

Peer-to-peer lending may also be an option. These loans can be found online and are offered by anonymous investors seeking to help students in need. Going with a private investor may be somewhat risky, but the investor may offer loan terms that suit your financial needs.

Continue your search for student loans until you find a solution that works for you, and remember that credit is just one factor in loan eligibility — not a barrier to your future.