Maximize your financial aid and your federal loan options and should always be your first choice when paying for college. But once these are exhausted? Private loans can fill the void.
Unfortunately, private student loans are not based on financial need. For the latter, private lenders will consider a number of factors, the most important of which is your credit rating. When it comes to private student loans, your credit score is important. And improving your score is one of the best ways to increase your chances of getting a low rate.
Beyond improving your score, be sure to compare your options as well. Use a tool like Credible to weigh the fixed rate and variable rate offers of various private lenders.
You can also shoot a student loan savings calculator to make sure you get a payment you can afford. If current private student loan offers aren’t up to par, taking the time to improve your credit score can improve your options. Here is what you need to know about how to get lower rates on student loans.
What is the interest rate on student loans?
“For private student loans, loan eligibility and interest rates are based on the credit rating of the borrower and the co-signer, if applicable,” said Mark Kantrowitz, vice president of SavingForCollege.com . “Borrowers who have a higher credit score are more likely to be approved and get a loan. lower interest rate. Borrowers with risky credit scores – below 640 – are unlikely to be approved for a private student loan. “
According to Kantrowitz, the average score for a private student loan borrower is around 780. If you are not sure if your score is up to par or if you are just curious about what student loan interest rate is offered to you, use Credible to compare student loan rates and offers – simply enter the amounts of your loan. It won’t hurt your score and can give you a good idea of your best course forward.
How To Quickly Improve Your Credit Score
1. Make all your payments on time
Payment history represents 35% of your Goal. This means that paying your bills on time can send it up, while paying late (or not paying at all) can send it down.
Your payment habits also determine how trustworthy you are in a lender. If you regularly make your payments on other bills and obligations, a lender can safely assume that you will with student loans as well. If you are confident in your credit rating, you should Find out what type of student loan rate you qualify for today.
However, if your payment history shows the opposite – overdue balances, late payments, or even accounts in collection – it will send serious red flags to someone considering loaning you money.
2. Get a credit card
Get a credit card can be a good way to both build credit (if you don’t already have one) or improve your existing score. Opening a balance transfer card with an introductory zero percent APR could be a smart move if your bills are piling up.
If you go for this route, you’ll need to make sure you keep the sales low. Use of credit – or the percentage of your total credit line that you actually use – is 30 percent of your score, and the lower that usage rate, the better your score will improve.
You’ll also want to make your payments on time, every time – and ideally in full. This will give you a solid payment history and further improve your score.
3. Increase your line of credit
If you already have a credit card, you may want to consider asking your bank or card provider for a increase in line of credit. As long as you don’t spend those extra funds, it should improve your score.
Here’s how it works: If you increase your total available credit while continuing to keep your balance low, your credit utilization rate is also low. This improves your score – and your chance of getting a low student loan rate.
4. Become an authorized user on someone else’s account
Credit card holders can add what is called an “authorized user” to their accounts. These are additional card users who are authorized to use the account, or sometimes they may even be given a card of their own. In either case, the primary cardholder is still responsible for paying bills, but both users receive a credit for them.
Yes your credit is bad or if you haven’t built much yet, consider asking a trusted parent or family member to add you to their account. You don’t even need access to take advantage of the benefits (just make sure you pick someone who you know will continue to pay the bills).
5. Check your credit report regularly
As a general rule, each American is entitled to three free credit reports every year, but during the coronavirus pandemic, you can shoot one whenever you want. Do this monthly and read your report carefully. Write down any errors, like payments that were marked late (but weren’t) or accounts you don’t recognize. If you report these confusions to the credit bureau that issued the report, they can correct the problem and it should improve your score.