What credit score do you need for student loans?
Headed to college or back to school? It may be time to choose a student loan. There are two kinds of student loans: federal and private. Each type has specific credit requirements. Let’s explore how these different kinds of loans work, and help you decide what might work best for your current credit standing. We’ll also cover what you need to know about your credit score when applying for student loans. Curious about where you stand? Check your credit score for free with Chase Credit Journey®.
How do student loans work?
Student loans are much like any other type of loan. The difference is you apply for a student loan for college or other forms of higher education and related expenses. Your loan agreement includes an interest rate and a repayment schedule, which usually begins after you graduate or are no longer enrolled.
Usually a bank, credit union, state agency or school is the funding source for private student loans, whereas the government funds federal student loans. Each type has different eligibility requirements for the borrower. Either type of loan can be borrowed by a student or their guardian. There’s also loan cosigning as an option. This is when the primary borrower (the student) takes out the loan in their name, and someone else (such as the guardian) co-signs the contract to help the borrower meet the requirements. This co-signer agrees to pay back the loan if the primary borrower doesn’t or is unable to.
Understanding credit as a student
Before learning about the credit score needed for a student loan, it may help to understand your overall credit and its relationship to your score as a borrower.
As a student, you may wonder if you even have a credit history. If you’ve held your own credit card, for example, then you have some credit history. This documents your past credit behavior: timely or past due payments, debt, credit balances and types of accounts, as well as available credit. This behavior then populates your credit report, which is compiled by each of the three major credit bureaus: Experian™, Equifax® and TransUnion®.
You can get a window into your credit report and score with the help of Chase Credit Journey. This digital tool includes credit monitoring, alerts and summaries that can include changes in your credit score.
The information in your credit report is used to calculate your credit score. The two common scoring models, VantageScore® and FICO™, each weigh aspects of your credit report differently to determine your score. Your credit report’s data will vary depending on which of the three credit bureaus issues it, and it can appear differently in each bureau. Lenders sometimes use only one of these bureaus’ reports to assess your credit. They view the score as an indication of your credit worthiness, or your ability to pay back a loan, but they may also look at the specific points in your credit report to help weigh you as an applicant.
What credit score is required for a student loan?
There’s no one single credit score that’s required to take out a student loan, as federal and private student loans have different requirements and options. Let’s dig in.
Federal direct subsidized student loans
Federal direct subsidized student loans do not have credit score requirements. They do not require a credit history or a credit check. There are two types of credit checks, also known as inquiries, hard and soft inquiries. Hard inquiries can have an impact on your credit score, and they’re usually associated with applying for a loan or some form of credit. Soft inquiries, which for example take place when checking your credit for free with Credit Journey, have no impact on your credit. They can give you an idea of where you stand without any harm to your score.
While there are no credit requirements for a federal subsidized student loan, the undergraduate applicant may need to show the financial need for the funds.
Federal direct unsubsidized student loans
A federal direct unsubsidized student loan does not have credit score requirements, and it does not require a credit history or credit check. While the applicant must demonstrate financial need for a subsidized loan, that is also not required for an unsubsidized loan. This type of loan can be taken out by undergraduate or graduate students. The biggest difference between an unsubsidized student loan and a subsidized loan is this lack of requirement to show financial need with an unsubsidized student loan.
Federal direct PLUS loan
A federal direct PLUS loan for graduate students requires that the applicant must not have an adverse credit history, or a history of negligence is required, when you apply for a federal Direct PLUS Loan. Still, if you do have an adverse credit history, you may be able to receive a PLUS loan if you meet other requirements.
Private loans
Private loans often do have credit score requirements, and they may vary by lender. A hard credit check will also typically be performed on the applicant. For private student loans, a cosigner may come in to play to help the primary borrower meet eligibility requirements. It can help to review these requirements with care before taking on a private loan. If you have questions about your credit score and are getting ready to apply for private loans, Chase Credit Journey can help you understand your creditworthiness. Their tools can also inspire ideas for how to improve your score.
Will paying off student loans increase my credit score?
There are pros and cons for your credit score when paying off your student loans. On the bright side, making timely payments can help you build a positive credit history, and these payments can help raise your score over time.
However, when you make the final payment, paying off your student loan may have a small, negative impact on your credit score. That could be because, by closing the account, you’re changing your mix of credit and the age of your accounts, both of which are factors that help determine your credit score. This dip doesn’t always happen and when it does it may not last long.
If your credit score has taken a dip after paying off your student loan, there are ways to help build better credit moving forward. Chase Credit Journey can help you see where you stand without harming your score. Plus, credit monitoring and alerts can help you track your credit habits as you manage your credit accounts. There are also insightful alerts to help you understand changes in your credit score and the reasons behind these shifts.
In summary
There are different credit score requirements for student loans, depending on if you get a federal subsidized or unsubsidized loan, or a private student loan. And when it’s time to start paying it off, or when you finally close the account, Chase Credit Journey can help you improve your credit score. With tools like a free credit monitoring and alerts, you can keep better track of your credit standing and any changes to it.