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Can I Refinance My Student Loans with a Low Credit Score?

Figuring out how to refinance your loans can feel like a hopeless cycle. People looking to refinance their loans are likely feeling stressed by their current financial situation, and as a result, are probably struggling to make their current loan payment. And if you’ve missed a couple of payments, it’s likely your credit score has taken a hit. While lenders and banks will grant mortgages to individuals with credit scores in the low 600s, refinancing student loans usually requires a minimum credit score of 650. However, if your credit score falls below this requirement, there are steps you can take to improve it or there are alternative options for dealing with your student loans.

If you are struggling with student loan debt in Arizona, it’s essential to get on top of the situation in a timely manner. Dealing with student loans is stressful, but ignoring them can negatively impact your credit score and ability to secure future credit. A debt settlement lawyer is a great resource for figuring out the repayment plan best for your situation. Here are some helpful tips for people looking to improve their credit score in order to refinance, along with some other strategies for repayment.

If You Can, Make Your Payments On-Time

One of the most important factors in determining your credit score is your payment history, which accounts for roughly 35% of your total score. If you have missed payments or not paid on time, it has likely made a negative impact on your score. Paying your bills on time will help to improve your score and make you eligible for favorable refinancing options.

Watch Your Credit Ratio

Another significant factor in determining a person’s credit score is their credit ratio or the percentage of your total credit limit you’re using each month. Usually, credit card companies don’t include this ratio on your monthly statement, but it’s fairly easy to calculate. Simply look at your current balance and divide by the total limit. People with credit utilization ratios of 10% or less tend to qualify for the best refinancing options. One way to reduce your ratio is to ask your credit card provider to increase your credit limit. However, if you go this route, it’s important to be intentional about not increasing your spending

Don’t Open New Credit Accounts

If you want to improve your credit score, it’s best to avoid applying for additional credit. Each new credit card or borrowing account you open will most likely reduce your credit history. This is because new accounts reduce your credit’s age, which amounts to 15% of your total score. Additionally, every time you apply for a loan or credit card it is considered a hard credit check, which can temporarily reduce your score.

When To Start Applying for Refinancing Options

With these methods, you should be able to slowly rebuild your credit and become eligible for refinancing options with low monthly payments. In general, it’s best to wait to apply until your credit score is around 675.

In some cases, building credit can be timely, and other strategies are needed for faster relief. For example, significant events like defaulted loans or bankruptcy can stay on your credit report for 7-10 years. Below are some alternative strategies for refinancing your loans.

Have a Friend or Family Member Cosign the Loan

Some student loan lenders will approve borrowers with low credit scores if they have a cosigner. A cosigner is someone who agrees to make payments if you default on the loan. While it’s most common for a cosigner to be a family member, it can be anyone you know. However, the person must have a good credit score.

If You Have Federal Student Loans, Consider Signing Up for an Income-Driven Repayment Plan

Individuals with federal student loans are usually eligible to sign up for an income-driven repayment plan (IDR). IDRs set your monthly payment to a percentage of your income, meaning if you have a low salary, an IDR may significantly lower your monthly payment.

Contact a Skilled Arizona Student Lawyer Today

Putting your student loans on the backburner can result in high penalties added to your original loan. Additionally, failing to make your payments could negatively impact your credit score, ability to gain employment, and ability to qualify for a mortgage. If you are struggling to repay your student loans in Arizona, you should contact a skilled student loan lawyer. An experienced attorney can examine your loans and finances and determine the best repayment plan for your situation.

At McCarthy Law, our attorneys are dedicated to helping students navigate the complexities of the student loan system. Under our student loan debt settlement program, our licensed attorneys negotiate with lenders to reduce the interest rate and principal balance of your student loans. At the end of a successful negotiation, our clients pay only a fraction of their original loan balance. To schedule a consultation with one of our skilled student loan settlement attorneys, call (855) 976-5777 or fill out our online contact form.

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Kevin Fallon McCarthy

Kevin Fallon McCarthy is the McCarthy Law PLC’s managing attorney and an experienced Phoenix debt attorney. Mr. McCarthy has also worked as general counsel for a large corporation. He has corporate counsel experience in human resource matters, general corporate governance, and union class action litigation.