People who apply for private student loans often do not have the type of credit history that lenders value. Young people often have not had much time to build a credit history at all; other older students might be going back to school to find jobs that pay higher wages because they have been stuck in a negative cash flow for years, which often means abuse of credit.
All is not lost, however, in seeking private student loans. There are some avenues that can lead to success in this quest. If you have almost no credit history, or a poor one due to a high debt-to-income ratio or late payments on other loans, you can still find a lender to fund your dream towards a diploma.
One common option is to apply for a private student loan along with a sterling cosigner. Many students use their parents as a cosigner; others ask a family member or friend to cosign. To improve your chances of getting one of the private student loans that are available, find someone with a credit score above 700 that understands what being a cosigner entails. Use of such a cosigner will dramatically improve your chances of being approved for a private student loan.
Another option is the myriad online lenders that give private, unsecured loans to people with bad credit. Shop around carefully for one that has the lowest interest rates, fees and other charges. Some of these online lenders are legitimate, others are not. Some charge outrageous fees and interest rates, so don't apply to the first one that promises approval.
You should also check with the Better Business Bureau to make sure that the lenders you are considering are respected and trustworthy. If not, run!
A third option for getting a private student loan with bad credit is to improve your credit score before applying for a loan. Most people do that in these ways:
- Obtain a free credit report and correct any errors that are on your record
- Get a student credit card and make payments on time to raise your score
- Pay off existing debt to boost your score
In this case, there is no substitute for time in raising your credit score to improve your chances at getting a private student loan. You might need to delay your enrollment a semester or two to gather the funds needed to pay tuition and fees through loan approval.