USDA Credit Score Guidelines

USDA Credit Score Guidelines

What is a Credit Score?

A credit score is a numerical value assigned to every person who has had a credit card, line of credit, or another type of loan. Credit scores are determined by whether or not a person makes their payments on time and how much debt they carry over from month to month. A good credit score offers the opportunity for lower interest rates and easier acceptance on loans and lines of credit.

Qualifying Credit for USDA Loans

Applicants for a USDA home loan must have qualifying credit. This means a credit score and history that indicates a person’s willingness and ability to make the payments on the loan they are applying for. To qualify for a USDA loan, you must:

  • Have no bankruptcy or foreclosure discharges within the last 36 months.
  • Have no recorded payments which are 30 days or later in the last 12 months.
  • Have no two rent payments 30 days late in the last 3 years.
  • Have no outstanding collection accounts on which you have no payment plans arranged.
  • Have no delinquent federal debts or tax liens for which you have no payment plans arranged.
  • Have no accounts which have gone to collections within the last 12 months.

Credit Score of 620 or Greater

With a credit score of at least 620, the USDA streamlines the underwriting criteria, meaning your loan will be approved and go through faster than if you have a lower score. If your score is at least that high, lending institutions will not even have to look at adverse credit histories, federal debts, or previous loans through other agencies. With a score in this range, you will not have to pay off any debts that are in collections and no other actions will be required. Keep in mind the lender mainly looks at the credit score of the primary wage earner. They will also do the same for co-signers, but their scores and circumstances may not carry the same weight in the approval process.

Credit Scores of 580-619

Individuals who fall into this credit range are far more closely scrutinized than those with higher scores. Historically, those in this range have a far greater chance of defaulting on their loans, so an itemized look at their credit history is done to ensure their creditworthiness for the loan. Lenders will evaluate housing and rent histories and look for missed or late payments. The USDA program offers waivers for problems with loan payments that were temporary in nature or beyond your control.

Credit Scores of 580 or Lower

Unfortunately, borrowers in this range have a much harder time qualifying for a USDA loan. Those who fall into this category have the highest rate, risk, and history of defaulting on loans. Many lenders will not consider you at all if you fall into this category, though some still will, provided you have no payments over 30 days late within the last 36 months. 

No Credit Score or Traditional Credit History

While it can be more challenging to get a loan with no credit history, it is still possible. This is a circumstance where having a co-signer with good credit can be of great benefit. Still, USDA will require other non-traditional credit histories to verify your credit history and ability to pay. Some of the criteria they use to qualify you for a USDA loan are: 

  • Rental or housing payments
  • Utility payment record
  • Insurance payments
  • Payments to retail stores

Any delinquent private or federal debts, tax liens, or accounts sent to collections will severely hinder your chances of qualifying for a USDA loan.

Are you curious about what your credit score is and if you qualify for a USDA loan? Contact a Mortgage Advisor today.