What credit score do you need to refinance student loans?

For many Americans, the high cost of student loans can delay plans of buying a home, saving for emergencies or putting money toward retirement. Refinancing your student loans is one way to ease that burden, but borrowers with little financial history may find that route challenging.

Private lenders check your credit score when you apply for refinancing, and many require a credit score of at least 650 to qualify. If you think your credit score could hold you back, here’s what to know.

The lowest credit scores accepted for student loan refinancing

Since refinancing comes from private lenders, every loan servicer has unique credit requirements. Your credit score is one metric of how reliable a borrower you may be, and lenders may use your score in determining whether you qualify for student loan refinancing and at what rate.

Credit scores range from 300 (poor) to 850 (exceptional). The longer and more dependable your track record as a borrower has been, the more likely you are to qualify for more credit – or, in this case, refinancing.

The higher your credit score is, the more likely you are to see competitive interest rates. Lenders generally want to see credit scores in the upper 600s to qualify for refinancing student loans. For instance, Earnest and Ascent require a credit score of at least 680.

Your credit score is one essential factor in determining your eligibility, but it’s not the only factor. Some lenders don’t advertise minimum credit score requirements because of other considerations, like your income and how long you’ve been making payments on your current loans. Some lenders may even consider your college field of study and profession when assessing your application to refinance student loans.

How to determine if refinancing is worth it if you have bad credit

Start by calculating the potential cost savings from refinancing. They’ll likely be minimal unless you have a steep interest rate. Also, consider the refinancing costs, loan terms and monthly payments the new lender offers.

Refinancing with bad credit could be worthwhile if you won’t incur significant costs and the new monthly payment works for your budget. But if a more affordable loan payment means a much longer term and excessive interest, you may want to explore other alternatives.

How to improve your credit score

A lower credit score doesn’t mean you’ll be denied for student loan refinancing. That said, the higher your credit score, the more likely you will get approved and secure the lowest interest rate offered.

Interest rates also vary by lender. You’ll improve your chances of getting a good deal by improving your credit score before applying to refinance your student loans.

Check your credit reports

Before your lender sees your credit score, check your reports with the top three major credit bureaus — Equifax, Experian and TransUnion — through AnnualCreditReport.com. This lets you see what potential lenders will see: your past credit usage, if you’re responsible with credit and if you have any bad marks.

If you notice any errors, you can report them to the credit bureau. Incorrect information could reduce your score. By removing incorrect information, you can give your score a quick boost. You should also use any resources from your bank or credit card issuer; most give you free access to your credit score.

Stay on top of payments

Even if you’ve been struggling to make payments, you’ll need to be able to prove an on-time payment history with your current loans. Payment history makes up 35 percent of your FICO Score, so the more payments you make late — or miss — the lower your score will drop. Keep your credit score as high as possible by making minimum payments when they’re due.

Lower your credit utilization rate

Your credit utilization is how much of your available revolving credit you’re using. For instance, if you have a $6,000 credit limit and use $3,000 of it, your credit utilization is 50 percent. This goes for total utilization, not just per card. So, if you have two cards with a $12,000 total limit and use $3,000, your credit utilization is 25 percent.

Credit utilization makes up 30 percent of your FICO Score. As long as you pay off your cards in full monthly and don’t carry a balance, your credit utilization will stay relatively low. If you carry a balance, keep your credit utilization to 30 percent or less. You can also request a credit limit increase. If your card issuer approves it, you’ll get a quick reduction in your credit utilization.

Take advantage of self-reporting

If your credit report is sparse, see if you can add other accounts in your name. Experian Boost factors in accounts like your phone bill, utilities and even streaming services. Some services even let you self-report rent payments.

Limit new accounts

New credit is a necessary evil for your credit score. It makes up 10 percent of your credit score, meaning it’s a small but important part of your credit history.

But too many accounts can hurt. Every time you apply for new credit, your score takes a temporary dip. Also, starting new accounts lowers your average account age, which is also a factor in your FICO Score.

How to refinance student loans with a bad credit score

If you have bad credit, you aren’t entirely out of luck when refinancing. Some lenders look at more than your credit score when you apply. For example, Earnest claims that in addition to the minimum credit score requirement, it considers your savings, education and earning potential to make approval decisions. Applying with a lender with broad eligibility criteria could help you get approved or get a lower rate.

Getting someone to co-sign your loan is also an option, especially if your credit score is below 650. When you add a co-signer, their credit and income is taken into account for approval and rate decisions; for many people, a co-signer is the only way to get approved for refinancing with a bad credit score.

Student loan refinancing alternatives

Refinancing might be a great next step for you if you have stellar credit and can qualify for an interest rate lower than what you’re currently paying. But it’s not the right move for everyone. If you don’t qualify for student loan refinancing or want to explore other options for managing your student loan repayment, consider these:

• Income-driven repayment plans: If you have federal student loans, you can explore IDR Plans. These base your payments on your income and household size. After 20 or 25 years, the remaining balance on your loans is forgiven. Your credit score doesn’t determine your eligibility for these plans, like student loan refinancing.

• Consolidation: If you want to move all your federal loans into one manageable payment, you can apply for a Direct Consolidation Loan. Your interest rate is rounded up to the nearest one-eighth percent, so you won’t get a lower interest rate like you might through refinancing. But you also won’t lose the federal protections — like deferment and forbearance — that come with having federal student loans.

• Forbearance: Forbearance is when you temporarily pause student loan payments without impacting your credit score. The federal government and some private lenders offer this option. Before applying, you can check with your lender to see if you’re eligible for forbearance.

The bottom line

The credit score you need to refinance your student loan varies by lender but is often 680 or higher. The higher your credit score, the better your chances of qualifying for a loan with a lower rate. In addition to your credit score, lenders consider other factors, like your DTI and repayment term. If you’re having trouble qualifying for a lower rate, adding a co-signer with better credit can help.

Before you refinance federal student loans, understand that doing so means giving up benefits, like access to federal forbearance and student loan forgiveness programs. If you plan to use those benefits, consider student loan consolidation instead.

Frequently asked questions

• What other factors determine your loan rate?

  Although your credit score is an important factor, it’s not the only thing student loan refinancing lenders consider when calculating your rate. They generally consider other factors, such as:

  • Debt-to-income (DTI) ratio: Your DTI is how much monthly debt you have compared to your monthly income. The lower your DTI, the better your chances of qualifying for a new loan with a lower rate.

  • Repayment term: Some lenders may charge you a higher rate if you take out a student loan with a long-term versus a shorter one.

  • Co-signer: When you apply for student loan refinancing with a co-signer, a lender will consider their credit score and financial situation. If they have good credit, it may help you secure a lower rate.

• What credit score gets the best student loan refinance rate?

  Beyond determining your chances of getting approved for a refinance loan, your credit score also impacts the cost of that loan. If you have a credit score of 650, you may be approved — but you’ll also likely face the highest interest rates the lender offers. If you have good credit, you can secure a lower rate that reduces both your loan’s monthly payment and the overall cost of the loan.
  
  In general, lenders see credit scores of 740 or higher as very good and those over 800 exceptional. You can often qualify for the best rates if you have very good credit. However, credit scores aren’t everything. You’ll also need a solid income and a good debt-to-income ratio.

• What is the minimum credit score for student loan refinancing?

  It’s possible to refinance student loans with a lower credit score. However, a score below 620 could make qualifying for refinancing challenging unless you get a co-signer who meets the lender’s eligibility guidelines. You’ll also need to shop around to find a lender that’s willing to work with you.