It’s not easy to refinance your student loans with bad credit. Lenders consider those with bad (or no) credit to be high-risk borrowers and are hesitant to lend them money. Of course, college students and recent graduates may not have had much time to even build good credit. Fortunately, there are plenty of things you can do to get approved, even with bad credit.

First, a look at why good credit is so important to get approved for student loan refinancing.

Is it Possible to Do Student Loan Refinance with Bad Credit?

When it comes to student loans, there is no collateral involved. Students essentially borrow money against their degree. For private lenders, the biggest concern is whether or not they will get their money back. Without collateral, they have to look for other ways to protect their investment. Credit history is the main tool lenders use to assess whether you are a high or low risk borrower.

Good credit indicates that you are a responsible borrower and are less likely to miss or default on your monthly payments. This is a good sign for lenders who will be quick to approve your refinancing application. As a low risk borrower, they will also charge you a lower rate of interest. The higher your credit score, the lower the interest rate you can expect to pay on the refinanced loan.

Bad credit indicates that you are an irresponsible (or inexperienced) borrower and are already struggling to meet your current financial commitments. This makes you a high-risk borrower who is more likely to default on your payments. With bad credit most refinance lenders will reject your application outright. Those who do approve will charge you a higher rate of interest to refinance your student loan.

Every lender sets their own scale for determining whether a prospective borrower’s credit is good or bad. In general, most lenders set the baseline as 550. Any score under 550 is considered bad and will make it difficult to get approved. Anything above that improves your chances of getting approved for refinancing.

How Applying With a Cosigner Improves Your Chances of Getting Approved

If your poor credit doesn’t qualify you for refinancing, applying with a cosigner can bolster your application.

A cosigner can be anyone who has good to excellent credit and who is willing to take on responsibility of the loan. This could be a parent, relative or friend. When you apply for refinancing with a cosigner, their credit score is considered in making the decision to approve. Their credit score is also used to calculate the interest rate on the refinanced loan.

Applying for student loan refinance with a creditworthy cosigner is easy. However, it is important for both you and your cosigner to understand the consequences of going this route.

When somebody cosigns your loan, it means they are sharing the responsibility for the loan with you. The refinanced loan will appear on your cosigner’s credit report. When their credit history is assessed, the loan will be considered as part of their overall debt loan. If you miss any payment, it will reflect negatively on your credit score as well as your cosigner’s. And if you cannot meet a payment, your cosigner will be held responsible for making the payment.

Some lenders offer a cosigner release option, which allows you to release the cosigner if you meet their minimum credit score requirements. Some lenders may also require you to have made a certain number of on-time payments.

How to Improve Your Credit Score

Poor credit makes it difficult to get approved for any type of loan, including student loan refinancing. Even if a lender approves you, they will almost certainly charge you a higher interest rate on the loan. While applying with a cosigner can help, it’s not easy to find a cosigner willing to take responsibility for your debts. With that in mind, you should stay committed to improving your credit score from day one.

Debt repayment history, amount of debt, and amount of debt compared to income are three factors that go into calculating credit score.

Here are some things you can do to keep improving your credit score:

Pay All Bills On Time

Missing credit card and loan payments is one of the most common ways that people hurt their credit. If you’re juggling multiple payments with different deadlines, set up a system to ensure that you don’t miss any payment. Missing even one payment can affect your credit score negatively. Setting up auto-payments is one way to make sure every payment gets sent out before the deadline. Most lenders will also reward you with a discount on the interest when you set up auto-payments.

Use Less of Your Available Credit

Lower credit utilization is another way to improve credit. Lenders are more likely to approve applicants who have use less of their available credit. Aim to use less than 30% of your available credit. If you can get by with using less, that’s even better.

Don’t Close Your Old Accounts

The length of your credit history is factored into the credit score calculation. Keeping old accounts open shows that you’re committed to building credit. Even if you don’t use an account, it helps your credit score to keep it open. Closing older accounts decreases the length of your credit history and impacts your credit score.

Don’t Open Multiple New Accounts Within A Short Period Of Time

Every time you apply for a credit card or loan, it triggers a hard credit pull or inquiry. Every hard inquiry can cause your credit score to dip. The dip is temporary but it can take some time to recover. Meanwhile, your lower score will affect your ability to refinance your student loans.

It takes time to build a good credit history. Unfortunately, it’s all too easy to hurt your credit score with one mistake. This can have long-term ramifications for you. Making good financial decisions is the key to building your credit score slowly but surely.