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How to Effectively Refinance a Student Loan with Bad Credit

  • Finance
  • Natasha Young
  • 8 minutes

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It might be hard to refinance your student loans through a private lender if you have bad credit. Each lender will have their terms and conditions. Usually, a lender considers your credit score as “poor” if your FICO score is below 580. Some lenders will charge you more, and others might decline your new loan request. But you may still get to refinance your student loan with bad credit. Read to know more. 

What is the minimum credit score required to refinance student loans? 

Most lenders keep their credit score requirements secret, so it’s hard to say exactly what credit score is needed to refinance a loan. Generally, anything over 650 gives you the best chance of getting in. So, even if you meet the minimum requirements, you’ll have to pay more in interest if you have bad credit.  

With a credit score of 650, you might be able to get a loan, but the interest rate might be high. If lenders don’t disclose the required credit score better get pre-approved with a few different companies. This will give you an idea of how your credit score affects your capability to get loans and how much interest you will have to pay. 

Should you be refinancing your student loans with bad credit? 

Not everyone should refinance, especially if they have bad credit. The main reason to refinance is to get a better interest rate. This is in addition to consolidating multiple loans and making it easier to keep up with your monthly debt payments. But if you have bad credit, you might not be able to get a better rate. The loan will cost you more over time if the rate is higher. You may end up paying hefty monthly payments. 

Steps to refinance student loans with bad credit 

You might save a lot of money on your student loans by refinancing them. Still, many private lenders won’t refinance your student loans unless you have a credit score of around 650. Here are some options to refinance your student loans with bad credit. 

  • Applying with a co-signer 

If you have bad credit and wanting to refinance your student loans, adding a close one as a co-signer might help. Of course, they should have a better credit score. If your co-signer has good credit, they might be able to help you get a lower interest rate and better loan terms. 

On the other hand, putting your close one’s credit report and score at risk by co-signing could hurt them. If you can’t repay your refinanced student loan when you said you would, it will hurt your co-credit signer’s just as much as it hurts yours. 

A co-signer is also responsible for the debt, just as if they had taken out the loan. Even if you always make your payments on time, the co-signed student loan might make it hard for your loved one to borrow again in the future. 

  • Improving your credit score 

When you apply for a loan, lenders consider your credit score. But before you apply for refinancing your student loan, it’s smart to work to improve your credit score. Here are some tips that might help you to improve your credit score: 

Keeping an updated credit report  

You can easily get a free credit report from each credit bureau once yearly. If you find any errors, you can dispute them with the credit bureau. Errors in your credit report can hurt your credit score. So, if this happens to you, make sure to get it corrected. 

Making timely payments 

Pay your bills on time. Use your phone to help by setting up automatic payments and reminders. Your history of making payments is worth 35% of your FICO Score. 

Lowering your credit card balances 

Your credit utilization ratio, also called your balance-to-limit ratio, greatly affects your credit score. When you repay your credit card balances, your utilization rate will usually decrease, which could help your credit score. 

Adding alternative credit to your reports 

Some programs, like Experian Boost, let you add information to your credit report. If you make timely payments, adding them to your credit reports could help your scores, especially if you don’t have many other accounts and your credit files are thin. 

  • Shopping around with lenders 

You should look around for the best deal whenever you need to borrow money. Looking at what different lenders offer, you could save a lot. Some private lenders will let you check your interest rate even if they don’t make a hard inquiry into your credit. This type of preapproval for a loan is great because it lets you compare different ways to refinance without hurting your credit score. Here are some lenders who will refinance student loans even if you have bad credit. 

  • Brazos: Best for Texas residents 
  • Citizens Bank: Best for borrowers who didn’t complete their degree 
  • College Ave: Best for a variety of repayment terms 
  • ELFI: Best for high loan balances 
  • INvestEd: Best for borrowers who might need forbearance options 
  • MEFA: Best for borrowers who attended public or nonprofit schools 
  • PenFed: Best for spouses who want to combine their loans 
  • RISLA: Best for borrowers experiencing financial hardship
  • Improving your cash flow 

When you want to apply for a new loan, lenders often look at your debt-to-income ratio (DTI ratio). DTI is a ratio that shows how much debt you have with reference to how much money you make each month (before taxes). 

Lenders won’t want to give you more money when you owe more than you make. But if you can improve your cash flow by paying down debt or making more money, you may be able to get student loan refinancing more easily.  

Alternatives to refinancing 

Refinancing isn’t always the best thing to do. Even if you have bad credit and a co-signer helps you refinance your student loans, your monthly payments might still be too much if you owe much more than what you make. 

If you have federal student loans and find it hard to make your monthly payments, the best thing to do is sign up for an income-driven repayment plan. You’ll get a smaller monthly bill based on your income and have 20 or 25 years to pay off the debt. You won’t save money on interest, but your balance will be wiped out at the end of the repayment term. 

To make things easier on your finances, you can consolidate your federal student loans into one loan and make just one payment each month. It won’t bring down your interest rate like refinancing with a private lender would. But if you stretch out your loan term, you can lower your monthly payment. 

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Bottom line 

You will need to find a co-signer with good credit, especially if you have bad credit and want to refinance your student loans. Shopping around with different lenders who may have different requirements for approval is another good idea. If nothing works, you might have to improve your credit score. Even if you can get a student loan to refinance with bad credit, it might not be the best thing to do. You might have to pay a higher interest rate and be unable to make your monthly payments. Know your budget and get an approximate using online refi calculators before deciding on refinancing. 


Can I get approved for a student loan if I have bad credit? 

Yes, there are a few instances in which individuals with bad credit can refinance their student loans. Every lender has different credit requirements, so compare as many lenders as possible to find a loan that meets your needs. Also, keep in mind that you can refinance student loans with bad credit, but you’re likely to get a higher interest rate than people with good credit. 

What credit score is needed to consolidate student loans? 

To qualify for refinancing, you’ll usually need good to excellent credit. A good credit score is usually anything over 700. But keep in mind that lenders have different rules about credit. Some lenders want borrowers to have good credit, while others are willing to work with people who don’t. Some lenders don’t have any minimum credit score requirements at all. But there is always a catch in refinancing your student loans with bad credit. 

Why is it hard to refinance student loans? 

Many big banks no longer make or refinance private student loans because it’s a small part of their business. And it comes with more rules. 

Can student loans be refinanced? 

Yes, both government loans and private loans can be refinanced. Refinancing your student loans doesn’t cost anything, and you might be able to afford your monthly payment or pay off your debt faster. 

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