Dealing with multiple, bulky student loans with terms, rates, and conditions of their own can be quite difficult. Keeping up with all the specifications, deadlines and rules is certainly likely to be very challenging, especially since the consequences of not being up to date can be disastrous. Refinancing is an excellent way by which managing student loans can be made an easier task. Refinancing can help borrowers avail lower interest rates, better terms, and conditions. Lesser interest rates can lead to borrowers saving up on money that they will spend on interest otherwise.
But qualifying for refinancing is not quite simple. Getting approved for refinancing your student loans depends on the borrower’s debt-to-income ratio and credit score. Much like how credit scores needed to get student loans to depend on the lender, the credit scores needed for student loan consolidation varies with companies. So is there a minimum credit score needed for refinancing student loans? The minimum credit score that most private lenders look for is 650. Although, this value can vary amongst different lenders.
We will discuss in detail the student loan refinancing credit requirements, refinancing your student loans with different lenders, and ways by which you can improve your credit score.
TABLE OF CONTENTS:
- Minimum credit scores needed to refinance student loans
- Factors that can help improve your credit score
- Factors besides credit scores that can help you refinance
Minimum credit scores required to refinance student loans
Companies are very secretive about the credit scores that they accept to refinance student loans. We have presented approximate information about the minimum and average scores accepted by a few companies here.
|Lender||Minimum Credit Score Needed to Refinance|
|Education Loan Finance (ELFI)||680|
|College Ave||mid 600s|
The average scores that these companies accept to refinance are pretty high. However, their minimum scores are certainly achievable.
650 is a score that marks the beginning of most lenders’ approval range. About 70% of consumers have scores that fall in the acceptable range of student loan refinance credit scores.
A score above 800 is considered to be excellent. Very few people have scored so high and to achieve such a high score, a consumer must have an in-depth understanding of how the credit system works. Borrowers with very high credit scores tend to drive the average accepted credit scores for refinancing high. As more people with moderate to good credit scores become aware of the benefits that come with refinancing and start to pursue lower interest rates, the average credit scores are likely to drop.
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Factors that can help improve your credit score
You do not have to worry if your credit score falls short of what is required by these companies. Several factors can help boost your score even in a short period of time. The factors are as follows:
History of your payments – This takes up to 35% of your credit score. So how is your payment history evaluated? The recent payment transactions are prioritized, so any recent payments your credit shows are given more credibility.
Credit Usage – This factor compares the debt on your credit card to the amount of credit still available. Credit Utilization makes 30% of your credit score. Credit utilization below 30% is said to be favorable. Your credit score will be better if your balance is low.
Length of Credit History – This holds value for about 15% of your credit history. This is one factor that can not be helped by a borrower.
Types of Credit – This makes up 10% of your credit score. You can possess various types of credit cards to make up to 10%.
Soft credit pull – This factor makes up 10% of your credit score. Hard inquiries can hurt your credit score. Borrowers interested in refinancing should look out for soft checks and other inquiry methods on lenders.
Making on-time payments - If you can make on-time payments without your loans going to delinquent or default, your credit scores are in good condition. This will not only help you during the refinancing process but also be eligible for loans that you may require to borrow in the future.
If your credit score is low, learn about how to refinance student loans with bad credit
Other factors considered while refinancing student loans
While rejections on applications for refinancing made by people with poor credit scores can be anticipated, it might be surprising to learn that quite a several borrowers with excellent credit scores have also been rejected before. This is because another very important factor to qualify for student loan refinancing is a borrower’s debt-to-income ratio. Here are other important factors to refinancing
Your debt-income ratio is important. A score below 20% is considered to be excellent
As mentioned above most private lenders look for borrowers with a minimum credit score of 650
A steady job will assure the lender that you can make continually on-time payments
Most private lenders require you to refinance a debt of a minimum of $5,000
You are expected to have a degree and in some cases a job offer in handy to be eligible to refinance
A cosigner with a good credit score and income can help you in the refinancing process. But not all lenders welcome a cosigner
If a major part of your paycheck gets devoted to credit card bills, student loans, and mortgages, then this factor may be a hindrance to getting approval for student loans to refinance.
Borrowers with credit scores near the acceptable margins with excellent debt-to-income ratio are more likely to get approved for refinancing than people with the alternative case. A borrower’s mere income could make the difference between approval and rejection.
Looking to refinance your student loans? Find the best student loan refinancing lenders
While borrowers are more than likely to get bummed out for getting rejected for low credit scores, it is important to realize that there are alternatives to going about this. Income-driven repayment plans and student loan forgiveness plans are just some of the many borrower protection plans that can be availed on federal student loans. These perks do not come on refinancing with private companies. Therefore, keeping federal student loans as they are, that is, without refinancing them may be the best option for people who are struggling to make payments.
The level of ease of difficulty prevalent in getting approval for refinancing your student loans may differ from lender to lender. And the strategy that should be adopted will depend on the borrower. People with low credit scores are advised to apply with several companies and not just one. If despite your best efforts, you are unable to secure a refinance deal, try working on improving your credit score and debt-to-income ratio. Restart the application process after any changes appear.
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