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Credit Score Below 650? How to Improve It and Refinance Student Loans

Kathryn Morstad

If you are like a lot of people, you may have student loans and a credit score below 650.

This often happens when college students have easy access to credit. As a target market for credit card companies issuing cards with higher interest rates, students apply for credit but then get behind on their payments. That can damage your overall credit score well into the future.

The problem with a score that rates as ‘fair’ or ‘poor’ is that it limits you in terms of options like getting a mortgage or refinancing your student loans. In fact, according to information released by FICO, almost 30% of Americans have credit scores at or below 650.

The good news – you can fix it!

If you have a low credit score, there are ways to fix it. And if you are considering refinancing your student loans to gain a lower interest rate or lower your monthly payments, the better your credit score — the more money you save over the life of your loan.

Instead of looking at how to refinance student loans with bad credit, let’s talk about improving your score first. To do that, we’ll start with the basics.

What is credit’s role in refinancing student loans?

Credit, and by that we mean good credit, is required in a society where a strong credit history gives you financial power. When financial lenders assess lending money to someone, they overwhelmingly use a person’s credit history as a determinant.

If you are considering refinancing student loans, understand that lenders will be looking at your past ability to meet your financial obligations and their best tool for that is your credit report.

How do I know where I stand?

First things first — you are entitled to a free credit report annually from each of the three credit agencies. This report tells you a number of things, including your actual credit score, your open credit accounts and payment history, and any inquiries that have been made recently.  Each of these things will impact your ability to refinance student loans.

How can I increase my credit score so I can refinance?

Consider these options to improve your credit report and set things is a positive direction:

  • Once you have your credit report, check for any errors or irregularities. Fixing these through each credit bureaus’ appeals process can be time consuming but is worth it in the long run.
  • Be sure to pay your bills on time. This can be the single biggest factor impacting your credit score. If you have gotten behind on payments, get caught up as quickly as possible.
  • Ask for a higher credit limit on credit cards or lines of credit. Be careful with this option! If paying credit cards has been a problem in the past, this may be inviting additional trouble. If done responsibly, this increases your outstanding-balance-to-total-credit ratio and improves the credit utilization component of your score.
  • Don’t close any credit card accounts. Closing an account lowers your available credit amount and increases your credit utilization.
  • Use any financial windfalls to quickly pay down balances, i.e., tax returns, inheritances, etc.

The 4 Best Companies to Refinance Student Loans

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Fixed Rate

4.48% – 7.29% APR 4

Variable Rate

3.53% – 7.24% APR 4
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Fixed Rate

4.49% – 8.99% APR 3

Variable Rate

4.49% – 8.99% APR 3
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Fixed Rate

4.39% – 8.99% APR 2

Variable Rate

3.99% – 8.29% APR 2
Loans Available in All States but Maine and Oregon

Fixed Rate

3.94% – 8.48% APR 5

Variable Rate

Not Offered

Can I refinance with a creditworthy cosigner instead?

Absolutely. If you find yourself with repair work that will take time, it may be more expeditious to refinance your student loans using a cosigner. This not only helps you improve your credit while making payments but allows you to quickly gain the benefits of refinancing. Those benefits may include lowering your interest rate (saving money over the life of the loan), consolidating multiple loans into one easy payment, or lowering your monthly payments altogether.

How do I find out what student loan refinance rates I qualify for?

Once you have devised a plan to raise your credit score, it’s time to check out what all that financial power gets you in terms of saving money and refinancing.

There are a lot of lenders out there that want to loan you money, especially with good credit. It can be laborious to research interest rates and available terms from one company to the next.

So, Purefy developed a comparison rate tool that brings together the best lenders in the student loan marketplace and gives them a platform to compete for your business. All you have to do is fill out some basic personal information (safe and secure) so that our highly vetted lenders can develop their best loan offers based on your financial status. Best part — it’s free and there is no obligation.

Consider a one-on-one consultation

Once you have your comparison, you may want to talk with one of Purefy’s Student Loan Advisors. They can help explain the loan process, answer any questions you may have, and walk you through your options. When you schedule a consultation, have your student loan history and information available — current student loan(s) information, payment due dates, etc.

Bottom line

It’s possible to be successful at refinancing student loans with bad credit. Consider improving your credit score the fastest way possible and then land the best rate using our comparison rate tool. You’ll be flying high in no time.

Check out what our best lenders have to offer at Purefy.

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ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 12/01/2022. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.64% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.24% APR to 8.54% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 3.94% to 8.48% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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