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Your federal student loan debt is a liability that you take on to help finance your college education. It should not be taken lightly. When you fail to make your payments, your loan will be considered to be in “default.” If this appears as an adverse mark on your credit history, it is taken seriously by other lenders as well as potential employers. The federal government offers several options for students to help avoid this option including different repayment plans, loan deferment, and loan forbearance. You are also given 270 days to catch up and avoid having your account turned over to a collections agency. Before you let this destroy your credit history, talk to your student loan servicing company to see if there are options available to you.
After defaulting on a student loan, you are not eligible to receive any additional federal funds unless you rehabilitate the bad loan. Defaulting on a student loan is never a good thing, especially considering what it does to your credit history. Through the rehabilitation process you make on-time payments on the bad loan. The particular type of loan issued will determine how long the rehabiliation process takes, but it could be for a period of between 9 and 12 months. After rehabilitating the process, your credit history is updated to reflect the current payment history and you could be eligible once again to receive additional federal funds.
If you are planning to pursue a career in a health science field and are worried about paying for college, there is a simple solution. Today many schools participate in programs designed to provide financial assistance to students enrolled in these areas.
The Loans for Disadvantaged Students program is offered by the U.S. Department of Health and Human Services. The goal is to provide loans that are non-credit based and have low interest rates to students studying in approved health science fields.
The Primary Care Loan program offers similar loans to those in pursuit of a medical degree focusing on primary care. Many of these loans have stipulations that the borrower must remain in the field of primary care during the repayment period.
The Nursing Student Loan program provides funds to students enrolled at least half-time in an approved nursing program at a participating school.
Each of these options can provide college funding for those with bad credit and come with different terms and conditions. Students can apply for these alternative bad credit student loans through the financial aid offices at their school. Bad credit does not have to stop you from attending the school you have your heart set on.
Not everything is black and white. There are a lot of gray areas in life. The same applies to you credit too. When you apply for a loan the people who process your application are not usually considering this gray area. They see in black and white ... at first.
If you are having trouble getting approved for a student loan, contact the bank or lender and ask to speak with a loan officer. Explain the reason behind your bad credit score. Perhaps there was a death in the family or you were hospitalized for a period of time, during which you missed payments on some accounts, through no fault of your own.
They can work with you if they believe there were extenuating circumstances for your credit problems and that you will be a reliable borrower. You may not always be able to get them to change their minds and approve you for a loan, but it cannot hurt you to try. The only way you will get hurt is by not getting a loan that you could have gotten with a little more time and effort.
Be the “Little Engine That Could” and try again. It worked for him. It can work to find college funding for you.
The best option for students or parents with bad credit is to search for scholarships and grants. These are sources of college funding that you do not have to pay back and will save you the most money.
There are tons of resources out there for non-repayable funds. Try a site like Fastweb.com. Spend some time researching what scholarships and grants you are eligible for and what you have to do to apply for them. Some might be based on academics, others on financial need.
Once you find the programs that you are eligible for, apply for them all. There is no amount too small. If you need $5,000 don't just apply for a scholarship worth that exact amount. Ten programs worth $500 each will get you to your goal just the same. In the end it is the dollar amount that matters, not the number of applications you fill out.
Your credit score does not affect your ability to obtain these types of assistance. So if you have bad credit use these as a way around that. In the long run, it saves you money and helps to stabilize your finances so you can start building good credit in the future.
Credit agencies rate your creditworthiness on a scale of 300-850 points. Typically, an individual with a score of 620 would not have a problem getting a student loan. In the past year that number has risen to 650. While a 30-point gap may not seem that big, The Wall Street Journal has reported that 10 percent of all private student loan borrowers fall into that category.
Though bad credit is not the kiss of death when it comes to student loans, it is getting harder to obtain a loan with lower credit scores. This is why it is imperative that you follow these trends closely. If you know what the score is that you would most likely need for a loan, you can monitor your own credit report and do what is needed to hit that number.
Your idea of a good score and the requirement for a particular loan you want may be different. Following this type of information may not seem very interesting until your children are thinking about college. So start thinking about it early and know where you need to be when the time comes to find that college funding.
Having bad credit is not the end of the world. It's just another speed bump on the road of life. Don't mistake it for a dead end. That may sound cheesy but it is true. If you know that your credit score is less than stellar, don't let that stop you from trying to get a loan. It may make the process more difficult, but nothing is impossible.
The last thing you should do is assume that you cannot get a loan because of your credit and give up on trying altogether. Different lenders and types of loans will have different requirements for approval. Your credit may not be as bad as you think and you may be eligible for more than you realize.
There are also alternative bad credit loans for people with this very problem. You will find that these loans come bundled with higher interest rates than others might, but there are ways around this too. Even if you start with a high interest rate, you can spend the time in college building your credit back up and refinance at a lower rate down the road.
It can be discouraging at times, but giving up on higher education and living with bad credit can be much worse.
One of the worst traps young college students can fall into is using credit cards to pay their tuition. It may sound like a good idea if you don't have the cash to pay your bill all at once, but it leads to long-term problems worse than the short-term ones it might fix.
Interest rates on most student credit cards are pretty high and putting large purchases on them can lead to very large minimum monthly payments. If you make a payment late you'll get hit with a fee for that. Then your interest rates can go up, pushing you over your card limit and saddling you with a fee for that too. Before you know it you have a large amount of credit card debt with late fees, over the limit fees and rising interest rates.
You end up spending more than the tuition you charged, while building a mountain of bad credit. It is easy to say that you won't ever miss a payment or send one in late, but it is even easier to have it happen to you.
Search for alternative means of college funding and build good credit at the same time. A declining credit score can only prevent you from getting loans you need in the future, while making you need them more than ever.
Before you start applying for student loans you should request a copy of your credit report. Loans based on your credit history rely on this report to determine if you are approved or not. Get a copy as soon as you can and go over it to make sure there are no mistakes. If you do happen to see something you believe to be a mistake, address it immediately.
These mistakes can negatively affect your credit rating and stop you from getting approved for a loan you should receive. If there is something in the report that you do not understand contact the credit bureau that you used for clarification. Ask as many questions as you need to until you understand each item and how they arrived at the final result.
When going over your report it is also a good idea to have copies of your credit card and bank statements, and any other loans and bills in your name. This is so you can compare them to what the reporting bureau gives you. The easiest way to fix a discrepancy is to have documented proof of the error in your possession to provide the credit bureau with. Then you will know if you need to apply for bad credit student loans.
There are many credit counseling services available to people with bad credit. A good number of these services are free and will help you improve your credit score, allowing you to get loans you might not have received before.
While researching college funding in preparation for attending or sending your child to school, seek out these offers. Banks and other student loan lenders usually have counselors who can advise you of your options. There might be little things you can do to improve your credit standing that you are not aware of, or alternative bad credit student loans available to you.
Bad credit hurdles can be overcome if you take the time to figure out how. Using professionals who deal with these issues all the time will strengthen your odds of getting the money you need to earn your degree.
Try a few different counseling services to see if you are getting the best possible advice and improvement in your credit. Armed with the knowledge of alternative options, coming up with the money for school will be much easier.
Chase Tip: If you find yourself in a situation where you may default on a student loan, talk to your lender first to see if there are other options available to you. This applies to both private and federal student loans. Once you default, you have limited options available. Although, if you have federal loans, you may be able to seek a federal student loan consolidation and agree to specific terms through the student loan consolidator including the possibility of making payments as dictated by the Income Contingent repayment plan.
Identity theft can happen to anyone at anytime. Thieves can even steal the identity of children since most parents don't review the credit history of their child until it is too late. When identify theft happens to you or your child it can destroy you credit rating and make it impossible to obtain a student loan. As soon as you discover that you or your child are the victim of identity theft, contact the credit reporting agencies and notify them. They can add a statement to your file indicating that identity theft may have occurred. This information is then included on any report sent to a private lender and also acts as a signal to lenders to verify all information including proof of identify from anyone applying for a loan using the victim's information. It can take years to clean up a mess like this, but you should start working with each creditor to get information removed from your credit history. With proof, you may be able to find a lender willing to grant a student loan based on the circumstances of your situation.
Finding money to help pay college expenses could be right under your feet. In fact, many students or their parent turn the equity in their homes into cash to pay for college rather than acquire student loans. A number of areas in the U.S. continue to see significant growth in home values each year. The difference between what you owe on your mortgage and the market or appraised value on your home (loan to value ratio) could provide you with the funds you need. To qualify for a home equity loan or line of credit, talk to a lender to get information on their credit granting criteria. Typically, the are willing to make a loan based on the loan to value ratio of your house as well as the financial and credit information the obtain from you. An additional benefit of a home equity loan or line of credit is that the money you borrow may be tax deductible. Check with a tax advisor to see if you would qualify for this tax benefit on your annual taxes.
When making a loan, a private student loan company will look at your credit history to determine your credit worthiness. They pull this information electronically from one of the three big credit reporting agencies (Equifax, Experian, and TransUnion). The credit agencies receive information from most lenders, credit card companies and other services to prepare the report so the information is updated fairly regularly.
When you have bad credit, it may take some time to clean up everything. In fact, some bad credit items like a bankruptcy can stay on your credit history for 7 to 10 years. There are ways to help you ensure you will qualify for a loan with the best interest rate, including:
1. Bills paid on time.
2. Minimal use of revolving credit (i.e. all credit cards).
3. Regular payments on installment loan made on time (i.e. car loans, mortgages, etc.).
4. Percentage of credit card usage (cards not maxed out but still have significant credit available).
5. No collections, liens or judgments.
6. No bankruptcy.
When a student loan is denied for reasons you think are unfair, ask your lender for details on what criteria they used to disqualify you. Next do a little research to see if the information they received on your credit report was accurate. The credit reporting agencies all rely on information provided by the companies that grant you credit and mistakes can happen. If you do find inaccuracies, report these immediately to the credit report agency. Since it can take six months to remove inaccurate information from your credit report, you should also contact the company that provided the inaccurate information and ask if they will provide a letter reflecting that the information provided was incorrect. Then take this back to your student loan company and ask if you can appeal the original decision. With documented proof of the errors, many lenders will review your information to see if they can qualify you for a student loan.
Unfortunately, there are always people who prey on the weak and vulnerable. This also applies to those who will take advantage of students who are desperate for money to pay for college. If someone tells you they can guarantee that can get you a student loan regardless of your credit, do a little research with the Federal Trade Commission or Better Business Bureau first to make sure they are legitimate. Never pay someone a fee to help you find a lender willing to make you a bad credit private student loan. These are usually scams that may further destroy a borrower's credit history and potentially even bury you in debt.
When bad credit has destroyed your credit file, you may be forced to seek an alternative bad credit student loan to help you pay for the cost of a college education. It is possible that you may only get a regular unsecured loan with a high interest rate rather than one specifically designated for the purpose of college expenses. To avoid being in a situation like this, plan ahead and take some steps like always paying bills on time to help improve your credit rating.
Bad credit doesn't have to stop you from getting a college education. Most lenders make some accommodations for students needing to finance their education. One possibility may be to add a cosigner to your loan. As long as the cosigner meets the credit granting criteria for a private lender, you should be able to get a student loan and may be even qualify for a lower interest rate. A move like this may also help you reestablish your credit history if you make the payments according to the terms of the loan agreement. However, not making the loan payments could become a problem for your cosigner who is also liable for the debt.
Some students, or their parents, have credit that is so bad they can't find a private student loan company willing to grant them a loan for college expenses. One last option that can be explored is to contact a lender of last resort. This is a private lender who is often more liberal in their credit granting criteria in order to make a bad credit college student loan. Information on a lender of last resort can be obtained by contacting the guaranty agency that serves your state. (You can get the contact information for the guaranty agency by calling the
|Jennifer Mathes, Ph.D.|