Alternative Credit Tradelines for a VA Loan
To be eligible for a VA home loan, you’ll need to meet both the VA’s and the lender’s requirements. This means not only getting a hold of your Certificate of Eligibility (COE) but also showing that you have the financial readiness to take on a home loan.
Your credit score is typically used by lenders as a way to determine your creditworthiness. But what if you don’t have much credit history, or your score has taken a hit in the past? There are still options for you to prove that you can handle paying bills on time.
Your credit score is determined by tradelines listed on your credit report. What is a credit tradeline? It’s a record of any type of credit activity which is typically presented as one line of information on your credit report. This doesn’t just mean credit cards, but also car loans, installment loans, as well as derogatory credit such as collection accounts. These ongoing account records are voluntarily forwarded to the three big credit bureaus, Experian, TransUnion & Equifax each month. To view your credit report with all three bureau’s data, a lender pays a credit reporting agency to consolidate all your data and scores onto one report.
For VA loans, lenders typically like to see a credit score of 620 or higher on your credit report, but if you’ve fallen behind on your bills in the past or haven’t had the time to open up many credit tradelines, your own scores may fall short, or the scores may not exist at all. The good news is that lenders can also accept alternative credit tradelines.
VA lenders want to help every Veteran they can to get a loan, especially those with little or no credit. To accomplish this, VA alternative credit tradelines can be used. Instead of relying on your credit report, lenders make their own assessment of your financial situation by considering non-traditional lines of credit.
Opening a new credit card and paying it for a few months isn’t going to be enough to show your creditworthiness. Lenders are looking for “seasoned” lines of credit, which are accounts that have been in good standing for a long period of time. An account will need to be used for at least a year or two to be considered seasoned.
While every lender has different guidelines, there are some common alternative tradelines that can be considered as part of your financial situation. These include rent payments, gas and electric company payments, cellphone bills, and allotments on your Leave and Earnings Statement. If these accounts have been in good standing for over a year, let your lender know.
A lack of credit history should not hold you back from achieving your homeownership goals. VA lenders want to get a full picture of your financial situation, not just laser in on a single number, which sometimes may not exist without enough credit history. The most important thing is to work with a lender you trust and who can guide you along the VA home loan journey.