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What are the VA Home Loan Credit Score Requirements?

by So Cal VA Homes
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Credit scores are an important part of anyone’s financial situation, and Veterans are no exception. This three-digit number signals to lenders what your creditworthiness is and gives them confidence that you can make payments on time. Though the VA does not have an official credit score minimum, this number still matters when it comes to getting the funding you need. 

Credit Score Basics

Credit scores are calculated based on information found in your credit reports. Details such as your payment history, amounts owed and number of accounts go into calculating your score, which can range from 300-850. You may see some variation in your score based on who calculates it and which credit reports are used. The most common score that lenders use is the FICO® score. 

According to Experian, a “Fair” FICO® credit score is 580-669. Anything above this range is considered “Good.” Once you hit 740, you’re in the “Very Good” range, and above 800 is considered “Exceptional.” The lower this number is, the higher your risk of default is to lenders. This means that those with lower scores can see higher interest rates on lines of credit, such as home loans. 

Why do Credit Scores Matter?

There are many factors that go into whether a lender will choose to work with a particular borrower. As a military borrower, your VA entitlement is only one part of the equation. Just because your Certificate of Eligibility shows you meet the minimum service requirements doesn’t mean you are automatically qualified for a VA home loan. You still need to meet the lender’s standards, and this is where your credit score plays a role.

What is the Credit Score Minimum for VA Loans?

Since there is no official VA home loan credit score requirement, lenders set their own minimums. While you don’t need to have a perfect credit history by any means, lenders need a reasonable amount of confidence that you can make good on payments. For this reason, most VA home lenders have a FICO® credit score minimum of around 620. 

To put this number in perspective, let’s consider the credit score minimums for other types of home loans. Conventional home loan credit score requirements vary greatly from lender to lender, but some are as high as 740. USDA loans look for a 640 or higher, and FHA loans have a 620 credit score minimum. The fact that VA home loans have easier credit requirements is a big reason why Veterans pick them over conventional loans. 

Keep in mind that lenders are looking to get a total view of your financial situation, not just your credit score. Don’t let a low score prevent you from getting in touch with a trusted VA home loan lender. It’s the only way to truly find out whether you qualify for a VA home loan. 

How Do I Improve My Credit Score?

The most reliable way to improve your credit score is to pay your bills on time. This doesn’t just mean credit card bills, but other expenses such as auto loans and utilities as well. Falling behind on your payments or settling a debt for less than what was originally owed can have a negative effect on your score. 

Another critical element of your score is your credit utilization ratio, which is the amount of your available credit, which you actually use. Low credit utilization shows that you have plenty of borrowing power. You can calculate your utilization ratio by dividing your total credit card balances by your total credit limit. Aim for a ratio of 30% or lower.

To avoid “shocking” your credit score, avoid applying for new lines of credit (such as getting a new credit card) during the VA home loan process. Multiple hard inquiries within a short period of time can damage your score. Hard inquiries occur when a lender you’ve applied with looks into your credit report, while soft inquiries—such as checking your own score—don’t affect your credit. 

Federal law has authorized a way for members of the public to get a free credit report every year. This is a good resource for those looking to take control of their credit score or prevent identity theft. While many services offer ways to keep tabs on your score, AnnualCreditReport.com is the only official method out there.

Your VA Home Loan Resource

There’s no doubt that a higher credit score can be beneficial to borrowers. A high number gives your lender the confidence to offer better rates on your home loan. But if you’ve been hit with a bankruptcy or have fallen behind on payments in the past, your credit score may not be an accurate reflection of where you are now. This is why it’s critical to get the conversation started, even if your credit score isn’t too hot. 

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