Are Credit Scores Needed to Ensure That You Secure a Student Loan?
Credit scores are extremely important when applying for a student loan. Indeed, they are one of the factors that are used to determine the loan that you plan to take, whether private or federal.
That being said, if you are without a credit score, or happen to have accrued a bad score as a result of debt or poor financial decisions, then it might be tough to be awarded a loan.
Keeping this in mind, here are some of the ways in which bad credit detriments your ability to borrow and receive a loan.
It’s Not Necessary to Have a Credit Score to Obtain a Federal Loan
When applying for a federal direct undergraduate loan, it is not required for one to have a co-signer or even a credit history.
As a result of this, federal student loans are usually preferred compared to private student loans because they have a lower interest rate and can be subjected to an income-driven repayment setup. Moreover, they provide the opportunity for loan forgiveness.
For one to obtain a federal student loan, they will have to meet the basic criteria for eligibility, which are factors such as being a citizen, and having enrolled into a viable program.
As a matter of fact, if you would like to kick start the program, all you need to do is submit a FAFSA, a Free Application for Federal Student Aid, to begin the process to obtain a student loan.
Indeed, this is the key to obtaining all kinds of aids, whether it’s work-study, scholarships, or grants.
Moreover, when it comes to federal student loans and making payments, it pays to do them early so that you can build your credit. That being said, a score won’t be reflected with any of the three credit reporting bureaus only after six months once you have begun payment on it.
Private Lenders Expect a Good Credit Score and a Co-Signer
If you’ve gotten enough federal student loans and thus require to add a private student loan, then you’ll require a student loan to get the qualification.
Indeed, a number of private lenders need you to get a great credit score, which would then need to be above 670 or higher when being compared to the 300-850 used by FICO; which is the most appropriate credit score around.
That being said, if you don’t have a viable credit history, you will need to look for a co-signer that holds a great credit score, as well as a steady income to gain qualification for a given loan. Additionally, the co-signer will have to have the responsibility to pay back the loan if you are unable.
Nevertheless, there will be a number of lenders that won’t need you to have a co-signer or a credit score. Indeed, they will have to see if you have potential instead of analyzing your current credit history.
Nevertheless, the interest rates on such loans tend to be much greater than those that are awarded on federal student loans, as well as on credit-based private student loans.
Benefits of Paying Back Your Student Loan
There are a number of benefits of paying back your student loan. One of them is that it helps improve your credit score and enable you to live a better life.
One of the reasons why is because, with a great credit score, you are able to gain a mortgage to build the house of your dreams, as well as take up the loans to achieve the status of the life that you require.
Here are some of the ways you can that you can eliminate your student loan in the following ways:
Look at the loan as a mortgage
If you are able to afford it, you can treat your loan like a mortgage. That simply means you should have larger payments and eliminate the principal early on and hence, minimize the amount of loan that you have for a shorter period of time.
Have a 3 to 5-year plan set up
Indeed, to ensure that you are able to complete your mortgage on time, you can also set up a definitive payment plan to ensure that your student loan does not affect your financial terms in the long run.
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