How to Get Student Loans with Bad or No Credit
More Americans are getting college degrees than ever before. The percentage of United States citizens 25 and older with bachelor's degrees is an incredible 33.4 percent. That's more than one in three people. With so many people in the workplace having four-year degrees, it's more important than ever to go to college if you want to stay competitive in a tough job market. The hardest part of getting your degree, on top of remembering to study, is deciding how you will pay for it.
You Can’t Expect Mom and Dad to Foot the Bill
Students can no longer expect a full ride from the bank of Mom and Dad. One study found that fewer than a third of parents expect to pay for the full cost of their children's college. Thankfully, there are all sorts of other ways students can find the money for school. Grants, scholarships, and work-study programs all go a long way to footing the bill for undergraduate education. However, even with all this free money, many students need student loans to bridge the gap.
With a competitive student loan, undergraduates can focus more on school instead of money. Even so, how can students qualify for the most competitive loans with the best interest rates? The best student loans aren't given out to just anyone. Lenders are looking for trustworthy borrowers with good credit scores and credit histories.
The catch is that many high schoolers have yet to dip their toes into the world of credit. How can students build credit and ensure that they’re setting themselves for success when it comes to paying for school? Here are some tips to help students with bad credit or no credit qualify for student loans.
What Can Students Do if They Have No Credit
One of the biggest hurdles teens face when applying for student loans is that they have no credit history. Many students don't even start to build credit until after they graduate from college. Because they have no credit history, it can be difficult for even the best students to qualify for great interest rates. Interest rates matter because they have a tremendous impact on the total amount you'll pay over the life of your loan. So, what can students do to start building credit responsibly?
Open a Checking and Savings Account
It may seem obvious, but you'd be surprised by how many people don't have savings accounts. A big part of credit history is the length of time that you've had an account open. By helping your child open a savings account, you're establishing a financial history and setting them on their way to a good credit score. Some people say that just having a savings account can boost your child's financial literacy.
Get a Job
This might sound blunt, but getting a job is one of the best things high schoolers can do. Having a part-time job during high school teaches students the value of money. This is in addition to providing an income history that is vital when applying for credit. In fact, it's the law that people under 21 have verifiable income to apply for a credit card without a co-signer.
In addition to putting money in your teenager's pocket, a part-time job is also an excellent extra-curricular activity. A part-time job speaks volumes about a student's work ethic and can even help to make their college applications more competitive.
Teach Student’s Financial Literacy
Now that your student has a savings account and is earning a paycheck, they may ask you to get them a credit card. Not so fast! Like any tool, you can't give your student a credit card without first teaching them how to use it.
A survey on financial literacy found that only 57 percent of Americans are financially literate. Taking the time to teach your student about finance goes a long way toward preventing money mistakes. If you need help teaching your student or want to learn more yourself, CFNC has you covered. The Financial Basics courses from CFNC are designed to educate students on financial literacy for high school and beyond. Eligible students are even entered to win an annual financial literacy scholarship!
Try Putting a Bill in Your Student’s Name
A great way for students to learn responsibility and build credit is to start paying bills. Begin with something small, like a cellphone bill, and make sure they pay it on time every month. This helps to establish a credit history, while also building good habits for your student. The key here is to make sure that they always pay the bill on time.
What About Student Loans for People with Bad Credit?
You know the ways that students can build credit. What if they already have bad credit and need a student loan? Lucky for you, there are still some helpful ways to improve credit scores that can help college students with bad credit qualify.
Pay Your Bills on Time
One of the most important things people can do to improve their credit scores is to pay their bills on time. Missing a bill payment, even by a few days, can have a massive impact on a credit score. The longer someone has been paying their bills on time, the better their score.
Keep Balances Low and Pay Off Credit Cards
It isn't the end of the world if your student has racked up some credit card debt. The key is that they pay it off and pay it off quickly. Using a credit card in itself isn't a bad thing. The caveat is that a student must have the discipline to pay it off in full and on time. Otherwise, it could end up doing more harm than good to their credit score.
Don’t Let Them Apply for New Credit
It's crucial that neither you nor your senior apply for new credit when you are in the process of applying for student loans. When you apply for credit, many institutions will send inquiries about your credit history. These inquiries can result in the loss of a few points that might make the difference between whether or not you qualify.
Don’t Close Your Accounts
It may be tempting when your student has finally paid it all off, but don't let them close that credit card. As long as it's not costing annual fees, it's actually better to keep those lines of credit open. This helps to improve your student's credit utilization ratio. This is the ratio between how much credit they have available and how much they owe. Again, the longer your student can maintain a positive credit history, the better their score.
A Responsible Co-signer Can Help Students Qualify
Even if they follow these tips, it still may not be enough to boost a student's credit score to where it needs to be. Building credit and maintaining a high credit score takes time and discipline. Don't let this get you down. There are still options available to help students qualify for the most competitive student loans and find a good deal for college.
Finding a co-signer with a good credit history can make all the difference when applying for a student loan. The co-signer is someone with a good credit score who agrees to share the responsibility for a student loan. But you can't get just anyone to co-sign a student loan. A co-signer must be a qualified relative.
Co-signing a loan is something that should not be taken lightly. This person is guaranteeing that the debt is repaid and is accepting just as much responsibility as the borrower. A co-signer is trusting the student to be responsible and always make their loan payments on time. If the student drops the ball, it could come back to affect the co-signer’s credit.
Apply for the Most Competitive Loan Available
Your student has done everything they can to improve or build their credit. They've also found a co-signer to help them qualify. Now it's time to research and make sure they're applying for the right loan for them.
The NC Assist Loan has extremely competitive rates that compare favorably with the rates of federal loans. On top of that, there are no fees associated with the loan. Find out more about if an NC Student Assist Loan is right for you.