When it comes to getting your college students through school, private student loans are often a necessity for many families. But what if your credit isn’t pristine? What if it’s just barely good? Or even fair? Just because you have less-than-perfect credit doesn’t mean you’ll be denied or end up paying an exorbitant interest rate.
Here’s the deal by the numbers: Consumers with credit scores of 670 or more pay less in interest than those with lower scores. The good news is that most Americans make the mark. But if you’re among the 33% that fall into the latter category, there are several things you can do to boost your score, says Rod Griffin, senior director of public education and awareness at Experian, the credit scoring agency. Step number one: Pull a copy of your three credit reports. “It depends on what the issues are [with your reports specifically], and that’s why it’s important to get a copy of your credit reports,” Griffin says.
Under federal law, consumers are entitled to a free credit report annually from each of the three major credit reporting bureaus: Experian, Equifax, and TransUnion from annualcreditreport.com. These reports are a historical look back about how you’ve been behaving as a borrower. You’ll see if you’ve paid late (oops) and other markers that can be holding you back. You’ll also get a look if yours is one of the 20% of reports that contains errors. “It gives you the information you need to establish a roadmap to make improvements in order to be prepared for your [student loan] application,” says Griffin.
Then, whether your problem is insufficient credit, poorly managed debt or too much of it, there are ways to improve your financial standing with lenders. Here’s a look at six effective strategies.
6 ways to boost your credit score to secure a student loan
1. Catch up on late payments
Your credit score consists of different elements that impact your overall ranking. Some carry more clout than others. Payment history is among the elements that matter a lot. It makes up 35% of your score, and for good reason. Lenders want to know you’ll pay back your loans and look at your past performance for evidence. A late payment here and there won’t hurt your credit score, but several can. That’s why it’s important to make on-time payments as often as possible. “Your credit score will rise gradually as you establish better financial responsibility,” says Adrian Nazari, founder, and CEO at Credit Sesame.
2. Pay down some debt
A quick way to improve your credit score is to reduce your outstanding debt. The less you owe, particularly when compared to the limits on your credit cards, the better you look in the eyes of the lender. More specifically, you want to be sure that you are using less than 30% of your credit lines both in total and on each of your cards specifically. And once you’ve dropped below the 30% mark, paying down debt until you’re closer to 10% will continue to help your score. “Figure out where you can cut back in your monthly budget and put the extra funds toward your debt. If you don’t have much wiggle room, take on a side hustle,” says budgeting expert Andrea Woroch. And note: If you have a month with heavy spending where you know you’re heading over that 30% mark, make a mid-month payment toward your bill.
2. Face your collections head-on
If you are in over your head with your debt, now isn’t the time to ignore it. Facing your debt head-on will go a long way to improve your credit score and financial standing. Reach out to your creditors to find a way to pay back what you owe instead of ignoring the phone calls and tossing the statements in the garbage. “Being in collections hurts more than account settlement,” says Nazari.
4. Report your rent payments & utility bills
Thanks to advanced data analysis, lenders now look at new data points when assessing a borrower’s credit risk. Reporting rent and utilities are among those, both of which can have a positive impact on your credit score. “We’ve seen that almost universally,” says Experian’s Griffin. Rent payment history can be particularly helpful for college students with little credit history. It gives lenders an idea of how responsible the person is without them having to take on debt. If you’re looking to have your rent reflected on your credit report, several services are available that do just that, including Rent Reporters, Rental Kharma, Level Credit, and others. “Two out three people increase scores on average 13 points” by reporting nontraditional data, says Griffin.
5. Time your credit card payments
For borrowers looking to give an already good credit score and added boost, Nazari of Credit Sesame says timing when you make your credit card payments can help. Let’s say you charge $800 but pay off the balance monthly by the due date. If you wait until the end of the month, it appears on the statement that you have an $800 balance even though you paid it off. That will increase your debt-to-income ratio which could hurt your ability to get the lowest rate possible on a student loan. A fix: pay your bill earlier in the month. “Don’t wait for the statement,” says Nazari.
6. If you’re on your own, take it step-by-step
Most traditional college students need a cosigner to qualify for a private student loan because of their lack of a credit history. But if a cosigner isn’t an option, there are ways to build a credit history over time. And, while your parents may not be willing to co-sign a student loan, they can add you as a user to their existing credit cards. This only works if your parents have a good credit score and low credit utilization. “All that good credit will transfer to your credit which will immediately impact your score,” says Nazari, which helps consumers improve their credit scores. Just keep in mind that establishing credit doesn’t happen overnight. It’s best to give yourself at least six months to create a credit profile lenders will be proud of.
