Sometimes people get ideas in their heads that are based on assumptions rather than facts. But when it comes to your finances, believing myths can cost you.
Take student loan refinancing, for example. Some people don’t even apply because they think they aren’t eligible. Continuing to make high monthly payments when you don't need to is like banging your head against the wall ... but you’ll feel the most pain in your pocket.
Refinancing student loans can be a game changer. A recent Comet review found people who refinanced saved an average of $259 a month and $19,231 over the life of the loan.
With so much to gain, it’s worth going through the process to refinance. There’s much you can do to up the chances of getting approved. Here's a quick look at what lenders are looking at—and what you can do before you approach a lender to boost your chances of getting approved for refinancing.
Impress them with your credit score
Your creditworthiness is highly important to lenders. To judge that, lenders look at your credit score.
If your credit score is in the 690 to 850 range, you are likely to be a good candidate for student loan refinancing.
Know when less is more
While lenders want your credit score to be high, they also want your debt-to-income ratio to be low (in the 20-36% range).
To calculate your ratio, add together all of your monthly debt payments and divide the sum by your gross monthly income, i.e., what you earn before taxes.
Hopefully you haven’t been a job hopper. Lenders want to see stability. They’ll review your employment history and income before approving your refinance.
Pay your bills on time
If you aren’t currently paying your student loan and other bills on time, lenders may think you have a bad habit that you can’t shake. If you have a track record of paying responsibility, that helps show that you are a low risk.
Before you approach a lender ...
Here's how make sure you're refinance-worthy:
Check your credit report
You can request and receive your credit report for free each year from the three major credit reporting agencies at AnnualCreditReport.com.
Look over your report, and make sure there are no inaccuracies. If you find any, contact the credit reporting bureau to dispute and remove them.
Pay down credit card debt
When you pay down your credit card debt you pump up your credit score.
If you have high balances with high interest rates, look into consolidating to lower-rate cards. Then work on paying down those balances to below 30% of your credit limit.
Look for a co-signer
If your credit isn’t as strong as it should be, find a parent, spouse, or family friend who has good credit to cosign the refinance application with you.
Having a cosigner not only improves your chances for approval, but it may also help you secure a lower interest rate.
Gather essential documents
You’ll want to have handy your most recent loan statement for each loan that you want to refinance, which should show your loan servicer name and address, along with the loan balance and interest rate.
Expect to show your driver’s license or passport, bank statements, pay stubs, tax return, and proof of graduation.
Are you Refi Ready? It only takes 10 seconds to find out how much you could save.