Do Private Student Loans Require a Credit Check?

Quick Answer

Private student loans typically require a credit check, and having a high score can help you qualify for a competitive rate. If you have bad credit, applying for private loans with a cosigner could help you get approved for a loan with better terms.

A young man smiles while looking at his tablet and writing on his notebook.

Taking out private student loans is a way to pay for education costs that federal aid won't cover. Most federal loans don't require a credit check, but private loans typically do require a credit inquiry, and having good credit can help you land a competitive interest rate. If you're considering a private student loan to pay for school, here's what you need to know about qualifying.

Do Student Loan Lenders Check Your Credit?

Lenders usually perform a credit check when you apply for private student loans. That's because private lenders are able to set their own loan terms, fees and eligibility criteria, and the credit check determines if you qualify and at what interest rate.

On the other hand, federal student loan terms, rates and eligibility criteria are federally regulated. The federal loan application doesn't involve a credit check unless you're applying for direct PLUS loans. Having adverse credit history—such as delinquencies, accounts in collections or bankruptcies—could make you ineligible for PLUS loans.

However, adding an endorser to your PLUS loan could help you get approved with bad credit. An endorser is essentially a cosigner who guarantees repayment of your federal loan if you don't pay.

What Is the Minimum Credit Score Needed for Student Loans?

Credit score requirements for private student loans can vary by lender and there is no set credit score minimum across the board. That said, having a high credit score can help you qualify for better interest rates that lower your monthly payments and long-term costs. Taking steps to improve your credit score before borrowing, such as reducing your credit utilization rate and disputing incorrect credit report information, could increase your score and help you land a low rate.

Can I Get a Student Loan With Bad Credit?

It can be harder to qualify for a private loan with bad credit, but not impossible. If you can't qualify on your own, private lenders often let you apply with a cosigner.

A cosigner is someone whose credit is reviewed along with your own during the application process, and they're also financially responsible for repayment. Some lenders even offer cosigner release after you make several years' worth of payments on your own. After getting released, the cosigner is no longer liable for your debt because you've proven you're able to manage repayment of the loan by yourself.

But what if you can't qualify for private loans and you don't have access to a cosigner? Income share agreements (ISAs) could be an alternative to explore.

An ISA offers funding based on the degree you're trying to obtain and, in turn, you pledge a certain percentage of your income after leaving school to repay the debt. Before going this route, however, it's important to weigh the drawbacks, such as the possibility that you'll have to sacrifice a large part of your income and that it might be more expensive than a traditional installment loan.

How to Reduce College Costs

Finding ways to lower your college costs can reduce the amount of cash you need to borrow in private student loans to finance your education. Below are ways to save money:

  • Fill out the FAFSA. Completing the Free Application for Student Aid (FAFSA) form may help you qualify for grants and work-study programs. Grants are free money you can put toward education costs, and working on or off campus could help cover living expenses.
  • Apply for scholarships.Scholarships awarded by companies, organizations or institutions can also lower your out-of-pocket expenses. and are two examples of databases where you can search for scholarships to apply for.
  • Stay close to home. Paying in-state tuition can greatly reduce tuition costs, and commuting from home rather than living on campus can cut room and board costs from your budget. The 2021-22 average in-state public school tuition for a four-year college is $10,740 compared with $27,560 for an out-of-state school, according to CollegeBoard, a significant difference if you're trying to save money.
  • Buy used books and equipment. Purchasing books and equipment on the secondhand market or borrowing textbooks from the library is a savings hack that could help you keep miscellaneous school costs low.
  • Apply for a fellowship. Taking part in a fellowship program may offer an opportunity to research, work in your field or develop professional skills while getting a stipend that you can put toward expenses while attending school.
  • Ask your employer to help pay. Some employers will help you pay for school if your degree is relevant to your career field. Consider speaking with your benefits department to see what assistance might be available.
  • Join the military. Military branches offer assistance programs that cover full tuition up to a certain limit per credit hour for active-duty service members . After serving, you may also qualify for the Post-9/11 GI Bill benefit, which covers tuition and may offer a housing allowance while you're in school. Conditions of service may apply.

It's Never Too Early to Start Building Credit

Working on your credit before searching for education funding can help you qualify for private loans with better terms. Payment history is the credit report factor that affects your credit score the most, so establishing on-time payment habits for all credit accounts is key. If you're building credit from scratch and not sure what your first move should be, Experian Go™ can help you figure out the best next steps to take to start your credit journey.