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Credit scores play a significant role when getting a mortgage. Not only do credit scores factor into your rate and loan terms, but they also play a role in determining overall eligibility.

Fortunately for VA borrowers, one of the advantages of VA loans is that they have more relaxed credit score requirements compared to conventional loans. Here we look at VA loan credit score requirements, what you can expect from the program and how credit scores impact VA loan eligibility.

VA Loan Minimum Credit Score

The Department of Veterans Affairs (VA) does not set a hard number on credit scores. Instead, the VA leaves credit determination to the lender. VA lenders typically require a 620 minimum credit score, though some may go as low as 580.

The 620 minimum credit score is not just an arbitrary number. It comes from how mortgages are bought and sold after closing. Private lenders and banks often sell their mortgages to government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac, to free up capital and continue providing mortgages to other borrowers. GSEs currently own more than 60% of all U.S. residential mortgages.

GSEs buy mortgages in “pools” or groups and have credit score requirements for what they purchase. GSEs like Fannie Mae typically require mortgages in their pools to all have a 620 minimum FICO score, which is how many mortgage companies set their credit score requirements.

VA Loans with a Low Credit Score

If you have a low credit score, getting a VA loan is still possible but may come with hurdles. You can read about VA loans and bad credit here, but here’s a quick overview.

Manual Underwriting with Low Credit

The first thing to consider is that your loan may require a manual underwrite.

When borrowers apply for a VA loan, their information is input into the Automated Underwriting System (AUS). AUS is a computer model that analyzes the borrower’s financial information, such as credit scores, income and debt levels, to determine if they qualify for a VA loan and meet the VA’s lending guidelines.

The system can generate a decision within minutes, streamlining the loan approval process. Based on the AUS findings, the lender may approve, deny or require manual underwriting for the application.

Borrowers with lower credit scores often require manual underwriting. Manual underwriting is the process of evaluating a loan application when AUS does not provide a clear decision. In manual underwriting, a human underwriter carefully reviews the borrower’s financial information and assesses their ability to repay the loan. A manual underwrite is more time-consuming and typically comes with additional requirements.

Additional Requirements

Borrowers requiring a manual underwrite often face additional requirements to offset risk. In these cases, it’s not uncommon for the lender to require things like:

A lower cap on the allowable debt-to-income (DTI) ratio: The allowable DTI can exceed 55% for borrowers with sterling credit. However, for those with less than a 620 FICO, their allowable DTI is often capped at 45 or 50%, depending on the lender.
Additional cash reserves: Your lender may require cash reserves (savings) to cover anywhere from 3 to 12 months of mortgage payments.
24 months of on-time rental payments: It’s also possible your lender requires verification of rent, where they need you to show 24 consecutive months of on-time rental payments.

Remember, requirements and guidelines vary by lender. It’s often a good idea to shop around with lower credit to ensure you receive the best terms.

Can I get a VA Loan with a 500 Credit Score?

With the thought of a manual underwrite, you may wonder how low a VA lender is willing to go.

With the VA not having a minimum credit score, getting a VA loan with a 500 credit score is theoretically possible. However, finding a lender willing to go that low may be difficult.

With credit in the 500s and below, prospective borrowers should look deeply at their finances and determine if they can truly afford a mortgage. If a borrower consistently misses payments, it’s probably not a good idea. Individuals who do not have a credit history can take steps to establish credit and with patience, increase their chances of being approved for a loan in the future.

Improving Credit to Meet Lender Benchmarks

Building credit to meet a lender’s credit score minimum requires time, patience and responsible financial habits. Some VA lenders may be willing to help guide borrowers in their credit-building journey. However, those with lower credit can also take the below steps to improve their credit score.

Check credit reports: Obtain a free credit report from each of the three major credit bureaus (Equifax, Experian and TransUnion) through AnnualCreditReport.com. Review the reports for accuracy and dispute any errors or inaccuracies.
Pay bills on time: Consistently paying bills on time is crucial, as payment history accounts for around 35% of the credit score. Set up payment reminders or automatic payments to avoid missing any due dates.
Reduce credit card balances: Aim to keep credit card balances low and maintain a low credit utilization rate (the percentage of available credit being used). Ideally, the utilization rate should be below 30%. For example, if you have a $20,000 credit card limit, an average balance of $2,000 translates to a 10% credit utilization rate ($2,000 / $20,000). Credit reporting agencies generally want to see credit utilization rates below 30%. But, the individuals with the best credit scores typically have utilization rates in the single digits.
Establish a credit history: If someone has no credit history or a limited credit file, they can consider applying for a secured credit card, which requires a refundable deposit. Alternatively, they can become an authorized user on a family member’s or friend’s credit card account, as long as the account has a good payment history and low credit utilization.
Avoid closing old accounts: Keep old credit accounts open, as they contribute to the length of credit history, which impacts the credit score. However, if the account has high fees or the temptation to overspend is too great, it may be best to close it.

While your FICO score typically doesn’t skyrocket overnight, doing the above can help improve your score and chances of getting a VA loan.

Final Thoughts

While the Department of Veterans Affairs doesn’t impose a minimum credit score for VA loans, many individual lenders require scores of at least 620. Finding a lender to approve a VA loan with a lower score is possible – but challenging. Instead, borrowers should focus on gradually improving their credit scores or work with a lender who can help guide them in their credit journey.

Written by Maurice "Chip" Naylon

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Unfortunately, meeting the military service requirements for VA home loan eligibility doesn’t mean you’ll actually qualify for a loan. For that, you need a solid credit score and good overall financial health. As such, we’ll use this article to explain how to boost your credit score to improve your chances of getting a VA home loan.

How to Boost Your Credit Score to Improve Your Chances of Getting a VA Home Loan

Specifically, we’ll discuss the following:

VA Loan Overview
How Your Credit Score Affects Loan Qualification
Steps to Boost Your Credit Score to Qualify for a VA Loan
Final Thoughts

VA Loan Overview

The VA loan program provides an outstanding home buying option for eligible borrowers. Administered by the Department of Veterans Affairs, these loans offer the following terms:

No down payment required
No private mortgage insurance (PMI) required
Low interest rates
Streamlined refinancing option via the Interest Rate Reduction Refinance Loan (IRRRL)

But, it’s important to note that the VA doesn’t actually lend money. Instead, it guarantees a portion of every loan issued by VA-approved lenders (e.g. banks, credit unions, and mortgage companies). If a borrower defaults on a loan, the Department of Veterans Affairs will repay the lender a portion of the outstanding loan balance.

With this system, the VA provides overall lending guidance. But, many loan decisions – including those related to credit scores – are made by the individual lenders. And, understanding how credit scores affect VA loan applications helps borrowers put themselves in the best possible position to qualify for a loan. We’ll discuss these considerations in the remainder of the article.

How Your Credit Score Affects Loan Qualification

Credit Score Overview

People often throw around the term credit score without actually defining it. Prior to outlining how to boost your credit score to improve your chance of getting a VA loan, we’ll briefly define the term.

Your credit score is a number between 350 and 850 that defines your creditworthiness, that is, how likely you are to repay debt. Higher scores indicate higher creditworthiness, whereas a lower score means that you are a more unreliable borrower. Technically, this three-digit score is known as a FICO (Fair Isaac Corporation) score, and three major credit agencies (Experian, Equifax, and Transunion) generate these scores based on several factors, including:

Your payment history (e.g. credit card and loan payments)
The total amount of money you owe
Length of credit history (i.e. when you opened your first credit account)
Types of credit you have
Frequency of new credit inquiries and accounts

Of the above factors, payment history plays the largest role in determining your credit score. That is, do you make your payments on time, or have you had some late payments? According to a CNBC study, payment history makes up 35% of your total credit score calculation.

Most lenders and credit agencies divide borrowers into the following tiers:

Exceptional: 800 – 850
Very good: 740 – 799
Good: 670 – 739
Fair: 580 – 669
Poor: 300 – 579

Generally speaking, better credit scores allow you to qualify for more loans at better rates.

How Credit Scores Affect VA Loan Qualification

The Department of Veterans Affairs does not impose a minimum credit score for VA loans. But, the VA only administers the program, while individual lenders originate and service the mortgages. And, many of these lenders require a credit score of at least 620 to qualify for a VA loan.

Furthermore, the higher your score, the better the interest rate you can receive. This can save you tens of thousands of dollars over the life of a loan. For example, say you take out a $250,000 VA loan to purchase a home. With a score of 780 (“very good”) you’ll likely qualify for the best rate, let’s say 2.5%. But, if your credit score drops 100 points to 680 (“good”), that rate could jump to 3.0%. This 0.5% increase translates to over $24,000 in extra interest payments over the life of a 30-year mortgage!

Steps to Boost Your Credit Score to Qualify for a VA Loan

Having outlined the reasons why credit scores matter so much for VA loans, the question remains: how can I boost my credit score to improve my chances of getting a VA home loan? While you can pay a credit repair agency to assist you in improving your score, most borrowers can make major improvements with a few simple steps:

Step 1: Regularly Review Your Credit Reports

If you don’t understand the factors affecting your own credit score, it’s hard to improve those factors. Federal law allows Americans to request a free copy of their credit reports (scores and all associated factors) once a year from each major credit reporting agency. That means that borrowers can review detailed reports – for free – at least three times a year. By doing this, you’ll arm yourself with the information necessary to improve your credit scores.

Step 2: Make All Payments on Time

As stated above, payment history plays the absolute largest role in determining your credit score. By making your loan and credit card payments on time, you will gradually improve your credit score. Conversely, one late payment can significantly lower your score. To avoid accidental late payments, you may want to consider setting up automatic payment plans.

Step 3: Maintain Low Credit Card Balances

Credit utilization serves as another major factor in your credit score. That is, of your available credit, how much do you actually use? Say, for instance, you have a $20,000 credit card limit. An average balance of $2,000 translates to 10% credit utilization ($2,000 / $20,000). Credit reporting agencies generally want to see credit utilization rates below 30%. But, the individuals with the best credit scores typically have utilization rates in the single digits.

Step 4: Understand What the Credit Reporting Agencies See (and Don’t See)

Not all monthly payments are reported to credit reporting agencies. For instance, rent payments do not affect FICO scores (though they may be reported to credit agencies). This means that paying your rent on time won’t improve your credit score. Understanding this, individuals should open at least one credit account (e.g. credit card, auto loan, etc.) that will be reported, and then use that credit responsibly. By establishing an open credit account, you begin the process of building an associated credit score.

Final Thoughts

Boosting your credit score has two major advantages related to VA home loans. First, a higher score increases your likelihood of actually getting a loan. Second, higher scores also typically come with lower interest rates, which can save you tens of thousands of dollars over the life of a mortgage.

But, veterans and active troops should understand that credit score isn’t the only factor that goes into a VA loan application. Lenders will also review your debt-to-income ratios, sources of income, and other factors relating to your personal finances. As such, you should take a holistic approach to improving your chances of getting a VA loan. The more you improve your overall financial situation, the more likely you’ll qualify for a loan.

Written by Veteran.com Team

The editorial team here at Veteran.com works to help the U.S. military community discover the many military benefits available to them. Our team is supported by our Veteran Review Board and its Standard of Care, which all content on Veteran.com is reviewed to meet.

Table of Contents

Our ability to borrow money (e.g. VA home loans, car loans, etc.) revolves around our credit score. A good score allows for more loans and better rates, while a bad one may completely prevent someone from loan approval. Bottom line, having solid credit is critical to the financial health of service members. As such, we’ll use this article to outline steps to improve your credit score in the military.

Specifically, we’ll discuss the following:

Credit Score Overview
Why Credit Matters to Military Members
Ways to Improve Your Credit Score on Active Duty
Final Thoughts

Credit Score Overview

People often throw around the term credit score without actually defining it. Prior to outlining how to improve your credit score, we’ll briefly define the term.

Your payment history (e.g. credit card and loan payments)
The total amount of money you owe
Length of credit history (i.e. when you opened your first credit account)
Types of credit you have
Frequency of new credit inquiries and accounts

Get a Dark Web Scan and your Experian Credit Report for FREE!

What’s A “Good” Credit Score?

Most lenders and credit agencies divide borrowers into the following tiers:

Poor: 300 – 579
Fair: 580 – 669
Good: 670 – 739
Very good: 740 – 799
Exceptional: 800 – 850

Generally speaking, better credit scores allow you to qualify for more loans at better rates.

Why Credit Matters to Military Members

To be clear, credit scores matter to all Americans. But, military members in particular have several reasons why credit proves so important.

VA Loans

VA loans provide eligible service members an outstanding mortgage option. With these loans, you can buy a new home with no down payment, and you won’t need to pay private mortgage insurance. But, to qualify for one of these home loans, you’ll need an acceptable credit score.

Technically speaking, the Department of Veterans Affairs does not impose a minimum credit score for VA loans. But, the VA only administers the program, while individual lenders originate and service the mortgages. And, many of these lenders require a credit score of at least 620 to qualify for a VA loan.

USAA and NFCU Auto Loans

Lenders also closely consider credit scores when reviewing auto loan applications. Fortunately, military members can access two incredible lenders: USAA and NFCU. Both of these military-friendly institutions offer outstanding terms on auto loans.

But, as with VA loans, these lenders require minimum credit scores to qualify for a loan. In a report on auto loans, USAA stated: As with most types of borrowing, your approval to borrow and your interest rate depend in part on your credit score and history. In other words, a low credit score can potentially prevent loan approval. And, even if you do qualify for a loan, a lower credit score will lead to a higher interest rate.

Security Clearance Issues

Of particular concern to service members, poor credit can indirectly affect your security clearance. While no official minimum credit score exists for security clearances, financial factors matter – a lot.

Financial issues consistently rank as the number one reason why people have their security clearances denied or revoked. First, if you face major financial issues, those issues may speak to your reliability. While some financial problems arise for issues outside of our control (e.g. medical emergencies), risky investments can also create problems. If you’re willing to take huge gambles with your financial health, the government may question your judgment when it comes to national security matters.

Second, major financial issues can open you up to blackmail and other manipulation. If you end up owing too much money, you may expose yourself to negative influence, with someone forcing you to compromise security matters to forgive debt.

A low credit score – for better or worse – suggests both unreliability and vulnerability. Accordingly, low scores can prove particularly troublesome for military members applying for or renewing a security clearance.

Ways to Improve Your Credit Score on Active Duty

Having outlined the reasons why credit scores matter so much to service members, the question remains: how can I improve my credit score while on active duty? While you can pay a credit repair agency to assist you in improving your score, most borrowers can make major improvements with a few simple steps:

Make All Payments on Time

Maintain Low Credit Card Balances

Understand What the Credit Reporting Agencies See (and Don’t See)

Not all monthly payments are reported to credit reporting agencies. Unfortunately, rent payments do not affect FICO scores (though they may be reported to credit agencies). This means that paying your rent on time won’t improve your credit score. Understanding this, individuals should open at least one credit account (e.g. credit card, auto loan, etc.) that will be reported, and then use that credit responsibly. By establishing an open credit account, you begin the process of building an associated credit score.

Regularly Review Your Credit Reports

Final Thoughts

Credit scores certainly affect all Americans. But, for service members in particular, having a good credit score is extremely important. By following the above recommendations, individuals can take solid strides towards improving their credit scores in the military.

Written by Veteran.com Team

The editorial team here at Veteran.com works to help the U.S. military community discover the many military benefits available to them. Our team is supported by our Veteran Review Board and its Standard of Care, which all content on Veteran.com is reviewed to meet.

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What are the credit score requirements for a VA mortgage? The basic answer to this question may surprise you. The VA Lender’s Handbook (VA Pamphlet 26-7) indicates no VA-required minimum FICO score to qualify for the loan.

That does NOT mean there are no minimum FICO score rules, just that the Department of Veterans Affairs does not set those standards. Instead, it relies on the participating VA lender to establish FICO score minimums.

A VA loan’s typical credit score requirement ranges from 580 to 640. Credit requirements vary by the lender and some lenders may have a higher or lower benchmark. Lenders accepting below a 620 often have additional financial requirements to offset credit.

Credit scores affect multiple parts of your home loan, not just the approve/deny factor. As we’ll explore below, borrowers with low FICO scores often don’t receive the same interest rates or terms as borrowers with exemplary credit.

VA Home Loan Credit Score Rules

The VA not mandating a credit score minimum, but lenders setting one may be confusing. To simplify, the VA does not want to micromanage the process and slow down veterans from getting into homes. Instead of setting hard requirements, the VA instructs lenders to ensure the borrower is an acceptable credit risk. Additionally, they want lenders to ensure the borrower can handle their monthly mortgage payments and recurring bills and still have money left over.

In addition to credit scores, the VA wants lenders to review the applicant’s repayment history. Missed or late payments within 12 months of getting a VA loan typically cause problems. However, the VA also requires lenders to review overall payment patterns, which means it’s not entirely impossible.

Who Decides What FICO Score Is Acceptable?

As mentioned above, the lender’s policies will determine what is possible with your FICO scores. But that does not mean it’s a wild west out there, with one lender accepting incredibly poor FICO scores and another requiring incredibly high scores for basic loan products. There are some baseline numbers you can use to guide you through the home loan process.

Other government-backed mortgages such as FHA loans (for purchase, construction loans, and refinance loans) require a minimum FICO score of 580 for the lowest possible down payment.

Lenders frequently require credit scores in the mid-600s for the best terms, the 580 requirement is from the FHA, not the individual lenders who often require higher credit scores as long as those higher requirements are still reasonable and customary for the type of home loan and the housing market the home is sold in.

Some types of mortgages will require higher FICO scores based on typical lender guidelines. Construction loans are one of these loan types–you may find the credit score requirements from an individual participating lender are higher due to the complexity of the loan (contractors must be hired, plans must be obtained and approved, there are building permits required, etc.)

What Happens If You Apply For A VA Loan With A Lower Credit Score?

There are low-credit score loans for borrowers who need them, but it’s preferable for all borrowers to work on their credit in the 12 months (or more) leading up to the loan application.

Those who apply with scores below the lender’s accepted cutoffs are subject to higher interest rates and in some cases (depending on the scores, the contents of the credit report, and other variables) a borrower may be required to make a down payment on the mortgage as a compensating factor for a lower credit score or spotty credit report.

The use of compensating factors is an accepted industry practice. Borrowers who make down payments on VA mortgages should know that there are definite benefits to doing so even if you are forced to because of lower FICO scores.

For example, if you put five percent or ten percent down on your VA mortgage, your VA loan funding fee is reduced depending on which amount you pay.

This saves you money over the lifetime of your mortgage–the principal amount you borrow is lower, and the interest charged on the lower amount won’t accumulate as much over time as it would if you financed a larger amount.

Some Lenders Work With Lower Credit Scores, Others May Not

There is enough variance in the credit requirements for home loan approval from participating VA lenders that it is possible to shop around for a loan, even with bad credit, and still find a lender potentially willing to work with you.

If you have lower credit scores or a credit report that has late and missed payments, some lenders won’t touch your loan application. But others will and it helps to know what these financial institutions are looking for when examining an application for a “bad credit” VA mortgage.

One such lender advertises their willingness to work with bad credit customers; the Freedom Mortgage official site advises, “Even if you have poor credit, you may still be able to get a VA loan. We’ll review your credit history and see if you pay your housing costs, credit card bills, and other loans on time each month.”

The site adds that consumers who pay their bills “regularly for at least the last 12 months” are more likely to get a favorable look from a loan officer.

The “12-month rule” is something applicable both to your on-time payments for all financial obligations (for best results, never apply for a major loan until you have a solid 12-month on-time payment record on ALL debts with no exceptions), and for paying down your credit card balances.

Carrying a high balance on your credit cards is one of the leading causes of lower credit scores. Taking 12 months or more to pay down those balances improves your FICO scores as you get closer to paying off your credit accounts (getting down to 30% of the maximum credit limit is ideal) the better candidate you are for loan approval assuming you meet the other financial qualifications.

Remember, not all VA lenders have the same credit requirements. State law, lender standards, changes to federal law, and other variables may affect how your lender deals with your credit information, application data, and FICO scores.

Written by Joe Wallace

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.

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