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Private loans

What is a FICO Score, and How Does it Impact Private Student Loans? 

Updated 09/12/2021

For many students, the financial assistance offered by federal student loans may not fully cover the total cost of a college education. For that reason, most borrowers will apply for private student loans as well.


When evaluating you for a loan, private lenders consider different criteria than the federal government. For private lenders, some of the most important information will come from a credit check, including your FICO score.


What is a FICO Score?


Your FICO score is a three-digit score lenders use to determine whether you’re a good candidate for a loan. A FICO score summarizes the information on your credit report and is the most widely used credit scoring method.


According to FICO, 90% of lenders use FICO scores to make lending decisions. If you apply for a mortgage, auto loan, or student loan, your lender will use your FICO score to determine the types of rates and repayment terms you receive.


Your FICO score plays a big role in your financial health. Understanding what it is, how it’s calculated, and how to improve it will set you up for success down the road.


What is a Good FICO Score?


Your FICO score will fall somewhere between 300 and 850, and the higher your score, the better. Each lender has its own way of determining what constitutes a good credit score, but here are the average ratings:


  • Below 580: Poor – this signals to lenders that you’re a high-risk borrower
  • 580-669: Fair — you may qualify for a loan but may not necessarily receive the best rates
  • 670-739: Good — most lenders consider this a good score
  • 740-799: Very good — this score is above what the average U.S. consumer has
  • Over 800: Excellent — these borrowers will qualify for the best rates and terms

These ranges can serve as a guideline to help you know what to aim for. It’s unnecessary to have an 850 credit score, but you should try to get a FICO score of at least 740 or higher.


What Determines Your FICO Score?


Your FICO score is calculated using different pieces of information in your credit report. These criteria are summed up in five different categories, and each category counts for a different percentage of your credit score:


  • Payment history (35%): Your payment history measures whether you pay your bills on time. This helps your lender determine if you’re a risky borrower.
  • Amounts owed (30%): This category looks at your credit utilization ratio, which is the amount of available credit you’re using. In general, it’s a good idea to keep your credit utilization ratio below 30%.
  • Length of credit history (15%): Your credit history looks at how much borrowing history you have. In general, the longer your borrowing history, the more it helps your score.
  • New credit (10%): New credit looks at whether you’ve applied for multiple lines of credit within a short period of time. This could indicate that you’re overextended financially.
  • Credit mix (10%): Your FICO score will also consider whether you have a mix of different types of credit. For instance, having a mortgage, student loan, and credit card will look better than taking out three credit cards.

How to Apply for Private Student Loans with a Low FICO Score


One of the challenges student loan borrowers often run into is either having a low FICO score or not having an established credit history. Both of these scenarios can make applying for private student loans more challenging but not impossible.


Here are four steps you can take to apply for private loans with a low FICO score:


  • Order a free copy of your credit report: One option that may help over time is requesting a copy of your credit report at AnnualCreditReport.com. You’ll receive a free copy of your report from Equifax, Experian, and TransUnion. Read through all three reports and ensure the information is accurate and up to date. According to a Consumer Reports study, more than a third of participants found errors on their credit reports. Inaccuracies in your credit report can drag down your score and affect your future lending decisions. If you find any inaccurate information on your credit report, you should ask that credit bureau to remove it.
  • Find a lender that considers factors beyond credit: If timing is of the essence for receiving your loan, it may be worthwhile to find lenders who will look beyond your credit score when considering your application. Your FICO score will always play a role in the types of lending terms you receive, but some lenders are willing to consider factors other than just your credit score. For instance, some lenders will consider your income.
  • Apply with a cosigner: It will take time to improve your credit score, but you may need to pay for college right now. For some lenders, adding a cosigner may be the quickest and best option for getting the best interest rate at the moment. If your FICO score still isn’t where you want it to be, you can ask a friend or family member with good credit to cosign the loan with you. As a cosigner, that person promises to repay the loan if you default, so it’s less risky for your lender.
  • Credit Monitoring: Another option that will help over time is to sign up for a credit monitoring service. You’re entitled to an annual free copy of your credit report, but you’ll want to check your score more regularly than that. That’s why it makes sense to sign up for a credit monitoring service. Many of these services are free to use and will alert you to any sudden changes in your score.