VA Loans and Credit Scores

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The VA has flexible underwriting guidelines, including no credit score requirements. Lenders often require at least a 620 credit score, but they look at much more than the score itself. Lenders look at your credit history to decide if you qualify for a VA loan.

Credit History and VA Loans

Two borrowers with the same credit score likely have different credit histories. That’s why lenders look at the history as it’s an indication of how you may handle the mortgage. It tells them more than the three-digit number. Your credit score is the ‘first impression’ lenders have of your financial responsibility. If the number passes their threshold, they’ll dig deeper into your credit history.

Lenders pull all three credit reports from the three bureaus – TransUnion, Equifax, and Experian. They take the middle score of the three reports. If you apply for a loan with a co-borrower, the lender uses the lowest middle score between both borrowers, so choose your co-borrower wisely.

Most lenders like at least a 620 credit score, but if you want the best terms and lowest interest rates, a higher score works better.

Lenders look at the last 12 months of your credit history. If they see many late payments or credit issues, they may hesitate to approve your loan request. Judgments, collection accounts, and over-extending your credit accounts signal financial issues that many lenders won’t risk.

How to Improve your Credit Score for a VA Loan

Even though the VA doesn’t have a minimum credit score requirement, boosting your credit score as much as possible before applying for a VA loan may help. Use these tips to improve your credit:

• Bring all late payments current – Lenders look back over the last 12 months. They may overlook one 30-day late or so, but any more than that and it’s a red flag. If you have any late payments, bring them current and keep making them on time, putting as much time between the late payment and your mortgage application as possible.
• Pay your mortgage on time – If you have late mortgage payments, they pose the largest issue. This shows VA lenders you can’t handle your housing payment. If you made a mortgage payment late, try to put 12 months between the late payment and your mortgage application. If you can’t, have an explanation for the lender for the late payment and proof of the resolution.
• Build your credit score – If you don’t have any credit, it’s as bad as having bad credit. Lenders need to see a history of your payment habits. Open a secured credit card, department store credit card, or take out a small personal loan. Use the credit and make your payments on time to build up a credit history and/or credit score. It takes a few months to a year to build a reputable credit score.
• Wait two years after a Chapter 7 Bankruptcy – When you file for Chapter 7 Bankruptcy, the courts wipe the slate clean. The date they discharge your bankruptcy – releasing your debts, is the date the countdown starts. The VA requires 2 years between your Chapter 7 discharge date and your VA loan application.
• Wait one year after a Chapter 13 Bankruptcy – When you file a Chapter 13 Bankruptcy, you promise to repay your debts but in a reorganized fashion with the help of a trustee. After making payments for 12 months (on time), and with the trustee’s approval, you may apply for a VA loan again.
• Wait two years after a foreclosure – If you lost your home in foreclosure, you must wait two years until you apply for a VA loan. If your foreclosed loan was a VA loan, you may lose some of your entitlement and may need a down payment to use any remaining entitlement.
• Pay your federal debt – If you have federal debt outstanding, you must take care of it before you can secure VA financing. If you can’t pay it in full, get a payment arrangement set up with the federal government. After you make payments for at least 12 months (on time), you may be able to secure a VA loan.

Lenders pay close attention to your credit history. If you’re unsure how lenders will view your credit, let’s talk. I have many years of experience working with VA lenders. I know what they look for and how they handle negative credit situations. Together we’ll determine how to best fix your credit so you get the best terms available on your VA loan.

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