Does your credit score affect your ability to get financial aid?

If you’re applying for financial aid, you or your parents might wonder if your credit score will affect your ability to get financial aid. Keep reading to have some of your questions answered about credit scores and financial aid.

Can I get federal student loans with bad credit?

As a refresher, financial aid includes everything from scholarships and grants to loans. It’s likely, though, that if you’re concerned about your credit score impacting your ability to get financial aid, you’re wondering if it will affect your ability to get loans.

For most federal student loans, including all federal loans for undergraduate students, you don’t need a credit check or co-signer. In other words, undergraduate students can generally still get federal student loans if they have no credit or bad credit.

Federal Direct PLUS Loans available to graduate students and parents of undergraduate students require a credit check. The credit check is used to determine whether the borrower has an “adverse credit history,” which is a record of poor repayment history.

If it’s determined that you or your parent has an adverse credit history, it’s still possible to obtain Direct PLUS Loans, but there are additional requirements you’ll have to comply with and meet. If ultimately approved for Direct PLUS Loans, your credit score won’t affect the interest rate on the loans since all PLUS Loans have the same rate depending on the year they’re disbursed.

If you’re looking to receive a Direct PLUS Loan and have an imperfect credit history, you can still receive the PLUS Loan through one of two ways:

1. Apply with an endorser who doesn’t have an adverse credit history. An endorser would have to agree to repay the Direct PLUS Loan if you’re unable to repay it.
2. The U.S. Department of Education will accept documentation in some instances outlining the extenuating circumstances relating to your adverse credit history.

With either option, you also must complete credit counseling for PLUS Loan borrowers.

Will applying for student loans hurt my credit score?

Applying for a Direct PLUS Loan will result in a credit check or “hard pull” of your credit, and applying for private student loans could also show up on your credit report as a hard pull, which may negatively impact your credit score. Additionally, all of your student loans and payment history can be listed on your credit report. Staying on top of your payments will help you maintain a strong credit score. However, failure to make payments will likely hurt your credit score.

Can I get private student loans with bad credit?

Having no or bad credit will often influence your ability to get a private loan. Private loan lenders almost always check your credit history to assess your ability to repay a loan. Generally, a higher credit score could lead to a lower loan interest rate.

In the event that you have no or bad credit, if you can apply with a co-signer who has good or excellent credit, your chances of getting approved for a loan are more likely. This might also increase the likelihood of receiving more favorable loan terms. Just remember that having a co-signer on your loan will mean the co-signer shares responsibility for the loan with you, so they can be negatively impacted along with you if you fall behind on payments.

What’s the minimum credit score needed for a private student loan?

Depending on your private student loan lender, there’s typically a minimum credit score needed to secure a student loan. The credit score required to get approved for a private loan will depend on your lender's requirements and can vary.

Final thoughts

If you’re an undergraduate student with bad credit, don’t let that stop you from applying for federal financial aid — your credit score won’t matter. This is slightly different for graduate students and parents applying for federal student loans, though receiving loans is certainly not impossible. If you decide to apply for any type of loan, read all the terms and conditions and understand the interest rates, if applicable, so you can make sure you’re setting yourself up for success.