Currently, over 44 million Americans owe $1.5 trillion in student loan debt. For those graduating in 2016, the average debt is $37,172. Financial experts characterize the current situation as a debt crisis, as student loans make up the second largest consumer debt category, edged out only by mortgage debt. As dire as that sounds, you can improve your current student debt situation by refinancing your loans if you meet certain standards. Lowering your interest rate can save you thousands over the life of a loan.
Your Credit Score is Important
Lenders will insist that you have a good credit score in order to refinance your student loans. Of course, different lenders have different definitions of “good,” leading to small differences in credit score standards. Many insist on a minimum of 680 before they will consider refinancing your student debt. SoFi, which is a well-known refinancing organization, will entertain applications with a 650 credit score or above. Read our SoFi review here. It’s safe to say that scores below 600 mean you have some work to do before you will be approved by anyone.
Improving Your Credit Score
If your credit score isn’t where it needs to be, you shouldn’t give up hope. You can take steps to improve that number in the next year or so.
First, always pay your bills on time. Even if you have missed payments in the past, your recent payment pattern counts for more with credit agencies than older behavior. Your credit problems don’t disappear overnight, however. If you have had an account in collection, it will stay on your record for seven years. Still, what you do right now will make it easier to refinance in the future.
Do pay down your credit cards because high balances have an effect on your credit score as well. Closing out unused credit cards will not help you, nor will opening new cards to expand your credit.
Finally, if you are having trouble getting your finances under control, consider seeing a credit counselor. They will help you identify financial problems and make a plan to correct them.
Although you will have to pay off your student loans, you may be able to lower your payments through refinancing. A lower interest rate can have a huge impact on your student debt. Although lenders consider other factors as well, such as income/debt ratio, they will not consider you if you have a poor credit rating. So don’t despair over your lower score but begin taking action now to improve it.