Generally, student loan borrowers with a FICO® score of 670 or higher stand a better chance at meeting a refinancing lender’s eligibility requirement. But according to an August 2020 report by the Federal Reserve Bank of New York, the average credit score across all student loan borrowers was at 656 — just a few points shy of what’s considered “good” credit.
The minimum credit score permitted to refinance varies between lenders. Whether you already have strong credit or currently don’t meet the credit score needed to refinance, there are ways to move forward with your student debt.
Credit Score Range Required for Student Loan Refinancing
You typically need what FICO calls a good credit score, which is from 670 to 739, to get approved for a competitive refinancing rate and terms. Another commonly used credit scoring model is called the VanatageScore® which sets its “good” credit range at 661 to 780.
Some lenders have more flexible credit score requirements than others and set their minimum credit score requirement at 650 which is considered “fair.”
However, higher is usually better when it comes to credit scores, regardless of the scoring model that’s used. If your credit score exceeds these ranges, and is considered “very good” or “excellent”, you may be more likely to qualify for student loan refinancing.
Recommended: What Is a FICO Score?
Why Is There a Minimum Credit Score?
Your credit score gives lenders an at-a-glance synopsis of your borrowing habits. It’s based on information from your credit report — which is a highly detailed record of activity on all of your credit accounts — and a single score tells lenders how well you’ve managed your credit and repayment thus far.
Refinance lenders establish the lowest eligible credit score they’re willing to approve and lend to better their chances of getting paid back.
Benefits of a Higher Credit Score When Refinancing
Meeting the minimum credit score requirement of your preferred refinancing lender can help you get through the door in terms of approval. However, a higher credit score improves your access to a lower interest rate and favorable terms.
Your lender’s lowest advertised refinancing rate, for example, is reserved for borrowers who’ve demonstrated excellent credit. If you don’t have established credit, some lenders let applicants apply with a cosigner.
Typically, a cosigner is someone who’s close to you like a spouse, parent, or grandparent, and has a strong credit profile. By agreeing to cosign your loan, they’re accepting financial liability to repay your loan if you fail to make payments.
Refinancing without a cosigner means that only the primary borrower is responsible for repaying the loan. Having another person who’s legally responsible for the debt is another way that lenders protect themselves from potential default. As the primary borrower, not only can a cosigner improve your chances of approval, their good credit can help you qualify for a lower interest rate.
Recommended: Guide to Establishing Credit
Tips That Can Help Improve Your Credit
If your credit isn’t high enough to meet a lender’s minimum credit score requirement, there are a few tips on how to build credit over time.
Make Timely Payments
Making full, on-time payments on your existing credit accounts is the most impactful way to improve your credit. This factor accounts for 35% of your FICO credit score calculation and is at the forefront of what lenders look at when evaluating your eligibility.
Lower Your Credit Utilization Ratio
This is the ratio of how much outstanding debt you owe, compared to your available credit. Credit utilization ratio accounts for 30% of your FICO score. Keeping your credit utilization low can be an indicator that — although you have access to credit — you’re not overspending.
Maintain Your Credit History
A factor that’s moderately important when it comes to your FICO score calculation is the age of your active accounts. Keeping older accounts active and in good standing shows that you’re a steady borrower.
Keep a Balanced Credit Mix Without Too Many New Accounts
Having revolving accounts such as credit cards, and installment credit like student loans or a car loan shows you can handle different types of credit. This factor affects 10% of your credit score calculation which isn’t as huge as your payment history but a factor nonetheless.
Additionally, although a mix of credit can help your score, opening too many new accounts in a short period can adversely affect your credit score by 10%.
Other Eligibility Requirements for Student Loan Refinancing
Lenders want to ensure that their borrowers have the ability to repay the loan, based on the loan agreement. However, your credit score isn’t the only factor that determines your ability to make payments.
Other eligibility requirements that lenders consider might include your:
• Status in the country (e.g. US citizen, permanent resident, etc.)
• Employment status
• School that you graduated from
• Existing debt obligations
• Loan amount
If your situation and credit score meets the lender’s requirements, you might be approved for a student loan refinance. Before refinancing your student loans, however, use a student loan refinance calculator to understand how much refinancing can save you.
Your Options if You Don’t Meet the Credit Requirements
If your credit isn’t eligible for student loan refinancing, you still have a few options to choose from.
• Apply with a creditworthy cosigner. As mentioned above, securing a trusted cosigner who has strong credit can potentially help you with your refinancing goal. Keep in mind that any late payments on your loan may impact your credit and your cosigner’s.
• Request an income-driven repayment plan. You can reduce your federal loan monthly payment by requesting to be put on an IDR plan. Depending on your plan, your term will be extended to 20 or 25 years, and your payment is calculated based on a percentage of your discretionary income and your family size. This option results in paying more interest overall.
• Ask about forbearance. If you’re experiencing a short-term financial hardship, like a job loss or sudden financial expense that’s making it hard to manage your student loan payment, forbearance might help. It pauses your payments for a temporary period, during which time interest still accrues. Ask your servicer about how to request forbearance, or contact your private lender to see if it offers this option.
Applying for Student Loan Refinancing With SoFi
Your credit score is just one factor that lenders consider when applying for a student loan refinance, but it’s an important one. Increasing your credit score before refinancing, or finding a willing cosigner with strong credit, can help you reduce your interest rate and lower your total education-related costs.
Refinancing a private student loan is advantageous if you qualify for a lower interest rate. However, determining if you should refinance your federal student loans needs more consideration. Refinanced federal loans are converted into private loans rendering you ineligible for federal benefits and programs. For example, you’ll no longer have access to programs like Public Service Loan Forgiveness or income-driven repayment plan options that help reduce your monthly payment.
If you’re still convinced that refinancing is right for you, consider a SoFi student loan refinance. SoFi offers low-interest rates and significant savings for those who qualify. Checking your rate only takes only two minutes online.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.