What are USDA credit requirements for those with little or no credit history?
It is possible to qualify for a USDA loan with little or no credit history?
When a homebuyer does not have an established credit history, USDA qualifications allow the ability to utilize non-traditional credit accounts.
In today’s video, I’ll discuss qualifying options that are available for those with limited or no history reporting to any of the credit bureaus. This allows for increased qualifying flexibility… that’s a USDA staple!
You can learn all about USDA eligibility in our FREE download USDA Blueprint to Success. This educational download will show you the USDA process from qualifying to closing.
USDA Credit Score Requirements
USDA credit score guidelines state that, “A credit score is a statistical number that evaluates an applicant’s creditworthiness based on their credit history. The credit score considers payment history, amounts owed, percentage of credit used, length of credit history, types of credit, and newly acquired credit.”
USDA does not have a minimum published credit score, but instead utilizes the Guaranteed Underwriting System (“GUS”) to determine the acceptable credit score for underwriting recommendations of an Accept, Refer, and Refer with Caution
For loans that receive an Accept response, no credit score validation is needed. What that means is that your credit profile could only have one credit score reporting and provided you receive a GUS accept, then no further validation is required.
However, if you receive a GUS response of Refer, Refer with Caution, or for those manually underwritten loan files, USDA guidelines that the “applicant must have two tradelines on the credit report that have been/were/are open for 12 months based on the date the account was opened as stated on the credit report. A validated score does not indicate the applicant has an acceptable credit history. A validated score confirms that one applicant has an eligible minimum credit history.”
Additionally, accounts such as secured and unsecured loans, revolving accounts, credit cards, collections, and even charged-off accounts may be used to validate the credit score.
Remember, if your credit report does not support the minimum accounts required by USDA, that is when you can utilize non-traditional or alternative credit history!
Traditional vs. Non-Traditional or Alternative Credit – What is the difference?
Traditional credit refers to companies that typically report their accounts to credit bureaus like Experian, TransUnion, and Equifax. For USDA qualification these traditional credit reference may include:
- Auto loan(s)
- Credit card(s)
However, sources which do not report to credit bureaus are classified as non-traditional credit or otherwise known as alternative credit history.
These alternative credit sources may include the following examples:
- Electric bill
- Water bill
- Phone bill
- Rental payments through either a management company or canceled checks to a private landlord
Minimum Credit Conditions Will Apply
Remember, it is possible to meet USDA qualifications with little or no credit history. However, minimum credit conditions will apply and non-traditional credit may not be used to substitute for negative credit.
We understand that qualifying for a USDA Loan may seem difficult and overwhelming, but that is why my team and I are here to help! As an approved USDA lender, we can maximize the potential of this unique program and open the door to homeownership.
Keep us in mind for your next pre-qualification or if you have a current USDA loan in progress and need an expert 2nd opinion. Just call or email to discuss your scenario and let us show you the “Metroplex“ difference!
Toll-Free: (800)806-9836 Ext. 280
Plus, don’t forget to download our FREE USDA Blueprint for Success. Go make it a great day and I look forward to seeing you for next’s week quick tip!