What Credit Score Do You Need to Refinance Student Loans?

Renee Layberry
May 4, 2021

If you’re like most college students, you’ll have several student loans by the time you graduate. They may well have different interest rates and monthly payment amounts.   To make your repayment schedule simpler – and hopefully save some money – you might want to refinance your student loans. You’ll get one new loan to pay off your existing loans.   When you refinance student loans, your aim is to get a lower interest rate  (which is usually fixed rather than variable) depending on what your credit score is.  You may also choose a shorter or longer term with your new loan, depending on your financial situation. If all your existing loans are refinanced under this one new loan, you only have to make one monthly payment instead of several, which can be easier to budget for and more convenient.   If this sounds like something that may benefit you, your first step is to see if you qualify for refinancing.  

How to get approved for student loan refinancing

Private loans have stricter lending qualifications than federal student loans, so can be harder to obtain. Most lenders will be looking for a few of the same things, including:
  • A strong credit score. Lenders want to know that you can be trusted to repay the loan. Their best meter to gauge this is a good credit history and score, which shows your level of financial responsibility.
  • A reliable income. Another important factor in determining your ability to repay your debt is your income. Lenders want to know you have enough money coming in to make your payments as well as pay your other bills.
  • Minimal debt. During the underwriting process, all of your debt will be analyzed, not just your student loan debt. The lower your other debt, the higher your approval odds.
  • A small debt-to-income ratio. Your debt-to-income ratio is the amount of your monthly debt obligations divided by your monthly income. A higher percentage may show the lender you will have a harder time repaying the debt.
  graduation cap sitting on a stack of 100 dollar bills Photo by 3D Animation Production Company

What's the minimum credit score you need to refinance?

One of the most critical pieces of the underwriting process for any institution is your credit score. Most lenders set a minimum requirement that potential borrowers must meet before even being considered for a loan. Often, however, they require a higher one once all of the other factors are taken into consideration.    On the FICO credit scale of 300 to 850, most lenders require a minimum of 670 to begin the underwriting process. Ideally, they would prefer a credit score of 700 or higher. If your credit score is lower than this, you may need to have a co-signer with an approved credit score.   It is important to point out that there are lenders who will accept bad credit scores, but the interest rates on these loans tend to be significantly higher, costing you much more over the life of the loan.   You can estimate your credit score here.  

Benefits of having a higher credit score when refinancing

There are many benefits of having a high credit score when applying for any loan. The most important is that you'll get a lower interest rate. That allows you to pay your loan off faster and it'll cost you less to borrow.   To qualify for the best interest rates and most favorable terms, you will need to have a credit score that is good to excellent. A high credit score obviously makes getting a loan easier. That's important: Since more lenders will be willing to approve your loan application, you can choose the best loan to fit your specific needs.   credit cards exposed in an open wallet Photo by Steve Buissinne

How to improve your credit score

Now that you know how important a credit score is when trying to refinance your student loans, you may be wondering how you can improve yours.  

Always pay your bills on time

One of the most heavily weighted portions of your credit score is your payment history. To keep this as high as possible, you will need to make sure that all of your payments are made on time, including your student loan payments. If you find that you procrastinate when paying your bills, consider signing up for autopay, so that your payments are automatically made on their due date.  

Avoid opening new lines of credit

Hard inquiries on your credit report when applying for new lines of credit can decrease it by a few points, but not significantly. But the problem with opening new lines of credit is it can reduce the overall length of your credit history, which can have a moderate effect on your credit score.    Also, to keep your credit history intact, you should never close old credit card accounts as these are likely making the length of your credit history longer.  

Keep an eye on your credit card balance

To have a high credit score, you will have to be able to show that you know how to use the credit you have wisely. This means keeping credit usage to a minimum and making sure the amount of credit you use is significantly lower than your credit limit.    To obtain the best credit scores, you will want to keep your credit card utilization to 30% of your available credit or less.   While a credit score of 650 can provide you with lending opportunities to refinance your student loans, the closer you can get your score to 700 or more, the better the interest rates and lending opportunities.