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Getting a college education can be the ticket to a better life for many people. Although grants and federal student loans are available, sometimes those are not an option for those who want to pursue higher education. Private loans are an option; but what if your credit is less than perfect? Attaining a loan could be a challenge for those with credit issues, but there are options. If you’re looking for a private student loan but don’t have perfect credit, keep reading for guidance and advice on how to get the funding you need to complete your education.

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What is “Bad Credit”?

A credit score usually ranges from a low of 300 to a high of 850. Where a person’s score sits on this range determines their “creditworthiness”. The lower the score, the less credit a person can get and the higher an interest rate they’ll pay if they do get credit. On the other hand, a high credit score means loans with low-interest rates, credit cards with high balances, and pretty much never having to pay a deposit or make a down-payment for purchases.

Credit scores are lumped into four major categories:

  • Excellent - scores 720 and higher
  • Good - scores between 690 and 719
  • Fair - scores between 689 and 630
  • Poor - scores below 629

There are several agencies that provide credit scores, such as FICO and VantageScore.

Where Does Bad Credit Come From?


The term bad credit means a person has a credit score that is below an acceptable level for most creditors. This usually means a credit score of 629 or less, though many companies also have their own rating system they use to measure creditworthiness. If a person’s credit is deemed bad, then getting a loan, a credit card, or being approved for a personal student loan can be difficult. And, if the person is approved, the interest rate on the loan or credit card will likely be much higher than that of a person with good or even fair credit. In many lender’s eyes, bad credit equals high risk and, if lenders are willing to take the risk, the person getting the loan will have to pay for it.

It is important to note that not having any credit can be just as detrimental as having bad credit. People with no credit have no track record of making payments on time for an extended period, therefore they are just as big a risk as the person with credit issues.

How Do I, or Loan Companies, Know I Have Bad Credit?


Typically, a person knows if they have bad credit. For example, if a person makes a habit of never paying their bills on time, or not paying at all, has a car repossessed, or has been evicted from an apartment or house; that person probably knows his credit score is on the low side. For those who don’t know their score, a person is entitled to one free credit report each year. Organizations such as FreeCreditReport.com provide reports, or you can contact one of the credit bureaus (Experian, Equifax, or TransUnion) and requesting a free report. Also, some companies will allow you to check your credit before officially applying for credit. This is called a soft credit check. Soft credit checks do not affect your credit, whereas a hard credit check, such as when someone applies for a credit card or student loan, will affect your credit score. If you’re turned down for credit, you can request a credit report for free as well. A company that pulls your credit report to decide whether to extend credit to someone will have access to the person’s credit report, so that company would know if you have good or bad credit

Federal Students Loans


Federal students loan do not require a credit check. If a student needs help with tuition, room and board, or living expenses, the student simply needs to fill out a FASFA form and make a loan request for the amount they need. Each student has a maximum loan amount that they can receive at any given point. If a student reaches this limit, they would need to pay off some of the student loans to qualify for additional loans. There are thresholds for both undergraduate and graduate studies. Loan limits had not increased in over 15 years until recently, so these loans may not cover the full cost of education, considering the cost increases that have occurred over the last 15 years.

Private Student Loans


If you need funds in excess of federal student loans, or you’ve maxed out the limit of federal student loans you can have, private student loans are also an option. Another time private loans could be an option is if a student is attending a school that isn’t accredited and therefore federal student loans cannot be used to pay for tuition or expenses. Private loans require a credit check and a creditworthiness score. If a student has decent credit, then qualifying for the loan shouldn’t be too difficult, but if they have bad credit, there’s still a chance the loan won’t be approved.

Applying for a Loan with Bad Credit


If, after grants and federal student loans, you still don’t have enough to cover your expenses and tuition, seeking a personal loan to cover the remainder is an option. If your credit is bad or you don’t have any credit to begin with, there are certain places where you can apply that might be able to help with your funding needs. We have detailed some steps and advice below to help you find the financing you need to continue your education.

Do Your Research


When you seek a personal loan for any reason, it’s important that you do your research. You want a loan that will not just provide you with the money you need in the short term, but also a loan that you’ll be able to pay back without accruing more interest or fees than necessary. Look for loans with lower interest rates and longer payback terms with smaller monthly payments. If you can pay the loan back early, that’s better than struggling with a loan payment that you might not be able to afford. You’ll also want to find loans that don’t require repayment right away. Being able to take a month or more after graduation to find a job before starting a repayment plan is better than having to start repaying a loan while you’re still in school. Many lenders have loan calculators on their sites so you can determine what your loan repayment terms might be depending on the length of time, the amount financed, and the interest rate. If your credit is less than perfect, your interest rate is going to be higher and that means a higher monthly loan payment.

Co-Signers


One way to get a better loan term is to have a co-signer. This is a person who agrees to be responsible for the loan in the event that you default. Co-signers typically have good or excellent credit as well as ample income to afford the loan. It’s important to note that the co-signer is the backup party responsible for the loan. As the person who needs the funding, you are primarily responsible for repaying the loan. Defaulting on the loan will hurt your already damaged credit as well as damage your relationship with your co-signer.

Provide Proof of Income


As part of the loan application process, you’ll have to show you have income. Providing proof of income shows the lender that you have the ability to make loan payments when it is time to repay the loan. Income verification is especially important if the loan payments are due before you finish school. The more income you can prove, the better the chances of getting approved for a loan with a decent interest rate. If you are a full-time student, it may be up to your co-signer to provide proof of income

Talk to a Credit Union


When you start looking for a loan, you might want to consider starting small and starting local. If you have a local bank you deal with (checking or savings accounts, for example), applying for a loan through them could work, especially is it’s a relatively small bank. A smaller local bank might be more willing to take a risk on a loan for a local person than a large corporate bank might be. Another option is applying through a credit union. Credit unions often help their members when other banks will not. If joining a credit union is an option, you might want to consider going that route to attain the additional funding you need.

Improve Your Credit


If you cannot secure additional financing, or the terms of the financing you could get won’t work for you, a final option is to take some time off from school and work on fixing your credit. It is possible to increase your credit score significantly in a few months, but you have to dedicate yourself to paying off old debt while keeping your current ones in good standing. Getting a copy of your credit report and paying off old debts, charge-offs, and other negative accounts will help improve your credit score. Once you have paid off a decent portion of creditors and you’ve kept your current financial obligations current, you can return to school with a better chance of getting all the financing you need through federal and private loans.

Alternative Loan Options


  • Peer-to-Peer Loans:
    Peer-to-peer or P2P loans have been around for a while. Individuals pool their money into a large fund and entertain loan requests from members. Decisions are typically made quicker than when dealing with a bank and most lending agreements take three to five years to apply. Examples of these kinds of loans include Lendingclub.com and Prosper.com.
  • Payday Loans:
    Payday loans are predatory. Taking out even the smallest payday loan can lead to a vicious cycle Let’s say you take out a loan for needed repairs. Between the incredibly high interest rate and the short-term nature, you might be forced to take out another payday loan to pay back the first one. Before you realize it, you’re stuck in a cycle of taking out a loan to survive and taking out another one to pay back the first. In some states, such as West Virginia, this type of lender is banned, and rightly so. You should be wary of even the smallest payday loans.
  • Family or Friends:
    If possible, approaching friends and family and asking for help could be an option. Whether it becomes a formal loan agreement or a “pay me back when you can” this could help you get the money you need to finish your education.

The Best Loans for Those with Bad Credit


  • Ascent
    Fixed APR: 4.21% – 13.12%
    Variable APR: 3.22% to 12.54%
    Minimum Credit Score: 600
  • College Ave
    Fixed APR: 4.54% - 11.98%
    Variable APR: 2.84% - 10.97%
    Minimum Credit Score: Proprietary. Use the prequalification tool
  • Discover Student Loans
    Fixed APR: 4.74% - 12.74%
    Variable APR: 2.95% - 11.62%
    Minimum Credit Score: 600
  • Sallie Mae
    Fixed APR: 4.74% - 11.35%
    Variable APR: 2.75% - 10.22%
    Minimum Credit Score: 600 for the Smart Loan