This is the best way to get lower student loan rates

Your credit score will play a big role in what rate you get. Here’s how to boost it. (iStock)

Maxing out your financial aid and federal loan options and should always be your first choice when paying for college. But once those run out? Private loans can fill the gap.

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Unfortunately, private student loans aren’t based on financial need. For these, private lenders will consider a number of factors — the biggest of which is your credit score. When it comes to private student loans, your credit score matters. And improving your score is one of the best ways to boost your chances of securing a low rate.

Beyond improving your score, make sure to compare your options, too. Use a tool like Credible to weigh both fixed-rate and variable-rate offers from various private lenders.

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You can also pull up a student loan savings calculator to be sure you’re getting a payment you can afford. If current private student loan offers don’t measure up, taking some time to improve your credit score may improve your options. Here's what you need to know about how to get lower rates on student loans.

What is the interest rate on student loans?

“For private student loans, eligibility for the loan and the interest rates are based on the credit score of the borrower and the cosigner, if any,” said Mark Kantrowitz, vice president of SavingForCollege.com. “Borrowers who have a higher credit score are more likely to be approved and to get a lower interest rate. Borrowers with subprime credit scores—below 640—are unlikely to be approved for a private student loan.”

According to Kantrowitz, the average score for a private student loan borrower is around 780. If you’re not sure your score measures up or you’re just curious what student loan interest rate you may be offered, use Credible to compare rates and student loan offers — just insert your loan amounts. It won’t hurt your score and can give you a good idea of your best path forward.

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How to improve your credit score fast

1. Make all your payments on time

Payment history makes up a whopping 35 percent of your score. That means paying your bills on time can send it up, while paying late (or failing to pay at all) can send it down.

Your payment habits also speak to how trustworthy you look to a lender. If you’re regularly making your payments on other bills and obligations, a lender can safely assume you’ll do that with student loans, too. If you're confident in your credit score, then you should check out what kind of student loan rates you qualify for today.

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However, if your payment history shows the opposite — overdue balances, late payments, or even accounts in collections — it will send up serious red flags for someone who's considering loaning you money.

2. Get a credit card

Getting a credit card can be a good way to both establish credit (if you don’t have any yet) or improve your existing score. Opening a balance transfer card with zero percent introductory APR could be a smart move if your bills are piling up.

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If you do opt for this route, you’ll need to make sure to keep the balances low. Credit utilization — or the percentage of your total credit line you’re actually using — accounts for 30 percent of your score, and the lower that utilization rate, the more your score will improve.

You’ll also want to make your payments on time, every time — and ideally in full. Doing so will give you a strong payment history and improve your score even further.

3. Increase your credit line

If you already have a credit card, you might consider asking your bank or card provider for a credit line increase. As long as you don’t spend those extra funds, it should help your score.

Here’s how it works: If you increase your total available credit but continue to keep your balance low, your credit utilization rate is low, too. That improves your score — and your shot at getting a low student loan rate.

4. Become an authorized user on someone else’s account

Credit cardholders can add what’s called an “authorized user” to their accounts. These are additional card users who are allowed to use the account or, sometimes, they may even be issued a card of their own. In both cases, the main cardholder is still responsible for paying the bills, but both users get credit for it.

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If your credit is poor or you just haven’t built much up yet, consider asking a parent or trusted family member to add you to their account. You don’t even need access to reap the benefits (just make sure you choose someone you know will continue paying the bills).

5. Check your credit report regularly

Typically, every American is entitled to three free credit reports annually, but during the coronavirus pandemic, you can pull one whenever you like. Do this monthly, and read over your report carefully. Note any errors — like payments that were marked late (but weren’t) or accounts you don’t recognize. If you report these mix-ups to the credit bureau that issued the report, they can remedy the problem and it should improve your score.

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