How Students with Bad Credit Can Apply for a Loan
Applying for any type of loan as a student can be quite difficult. All creditors are going to closely look at your credit score before making a decision, and this is a problem.
At this point in your life, you likely haven’t had much time to build history. In addition, if you’ve made any sort of credit mistake, like missing a payment, this mistake will appear much more glaring compared to another applicant with a long credit history.
Fortunately, there are a number of tactics students can use to increase their chances of getting a loan. Whether you’re applying for a car loan, a mortgage or a credit card, you can use this advice to qualify despite your weak credit score.
1. Aim a little lower.
When you apply for a loan as a student, the odds are stacked against you. Not only is your credit score weak, but your income isn’t as high as if you were working full-time.
To get over these issues, you may need to set your loan goals a little lower until you finish school.
For example, instead of applying for a high-rewards credit card, you may need to settle for a low-limit student card with no rewards. Instead of buying a brand new car, you may need to buy a used car instead.
Take whatever loan opportunities you can now. In a few short years, you’ll be working and able to qualify for better options.
2. Look for a part-time job.
To qualify for a car or house loan, you need to have the income to make the monthly payments. If you are a full-time student with no current income, chances are you won’t qualify.
However, if you can get a job that pays enough to cover the loan payments, your application will be much stronger. Your weak credit score will still be an issue, but at least having income solves one major problem.
“If you save up enough for a down payment,
it will make your application much safer.”
3. Make a down payment.
If you’re looking to buy a car or a house, a down payment makes a big difference for your application.
Lenders are very uncomfortable giving money to students because they worry students won’t have the ability to pay anything back.
If you save up enough for a sizable down payment, around 20 percent of your loan, it will make your application much safer.
After a down payment, lenders have to risk less money. They’ll also feel reassured because they’ll see you were able to save up a large amount of money, even while in school.
4. Get help from a cosigner.
It’s often hard for students to get loans on their own. Would your parents or another close family member be willing to help? If someone cosigned your loan, it would increase your chances of getting approved.
Lenders would consider the cosigner’s higher score as part of their decision, so this helps considerably.
If you do get approved for a cosigned loan, be extra careful about making the payments on time. Missing payments on these loans would hurt the cosigner’s credit score along with your own.
5. Keep building your credit.
Your credit score might not be great today, but you have the power to make it better for tomorrow.
If you haven’t already, take out a credit card and start making the monthly payments on time. Be sure to avoid missed payments and don’t build up too much debt.
This will improve your credit score over time and you’ll have more loan options in the future.
Qualifying for a loan as a student is challenging but still possible. Be sure to keep good credit habits during school so applying for a loan will never be this complicated again.