The USDA home loan program delivers affordable financing to low-to-moderate income homebuyers. The minimum credit qualifying score USDA-approved lenders require can vary and credit scores can impact the approval process. However, the USDA does not have a hard and fast credit score requirement, so borrowers with low scores may still be eligible to qualify for a USDA-backed home loan.
Let’s break it down.
What is the minimum credit score for a USDA loan?
Approved USDA loan lenders typically require a minimum credit score of at least 620 to get a USDA home loan. However, the USDA doesn’t have a minimum credit score, so borrowers with scores below 620 may still be eligible for a USDA-backed mortgage.
If your credit score is below 620, there’s still hope. Your loan will just need to go through manual USDA underwriting, and you may need to compensate with a low debt-to-income ratio, a hefty savings account, or other financial factors that reduce your risk as a borrower.
At Neighbors Bank, we typically look for a minimum FICO credit score of 620. For borrowers who don't meet our credit requirements, we offer a free credit consulting. Get in touch today!
Why do some lenders require a 640 credit score for USDA loans?
Lenders prefer to use the USDA Guaranteed Underwriting System (GUS) for an efficient, streamlined underwriting process. GUS analyzes your risk and eligibility as a borrower using a scorecard.
Automatic GUS approval requires you to have a credit score of 640 or higher with no outstanding federal judgments or significant delinquencies.
Even if you don’t have a 640 credit score, it’s still possible to apply and be approved for a USDA loan. USDA allows lenders to underwrite and approve USDA home loans manually at the lender’s discretion. Once cleared by your lender, the USDA must review your loan for final loan approval before you can close.
Regardless of credit score, all USDA loan applications must receive final loan approval from the USDA once cleared by the lender.
USDA Credit Score Requirements vs. Other Mortgages
USDA home loans aren’t the only low-cost mortgage option available to homebuyers. See how credit scores of other mortgage types compare to USDA:
| Loan Type | Minimum Credit Score Requirement | Other Notes |
|---|---|---|
| USDA | 620 | Scores below 640 may require manual underwriting by the lender. |
| Conventional | 620 | 720+ credit scores preferred to unlock competitive interest rates. |
| FHA | 580 | Scores below 580 will require a higher down payment. |
| VA | 620-660 | Minimum credit scores are set by the lenders, not the VA. |
How to Qualify for a USDA Loan with a Low Credit Score
If your credit score is below 640, your lender may still manually underwrite your USDA loan application. A designated loan underwriter will review your documents and application by hand instead of automating the process with GUS.
Manually underwritten applications typically require other strengthening income or asset information in your application. These factors give strength and showcase your ability to repay the loan, such as:
- A current mortgage or rent payment that is higher than what your new mortgage will be
- Cash reserves or other assets
- A low debt-to-income ratio
- A stable, consistent employment history
Lenders call these “compensating factors” the extra assurance you can repay the loan, even if you have a less-than-perfect credit score.
Getting a USDA Loan with No Credit History
If you’ve never taken out a loan or credit card to establish credit scores, you’ll need to document your ability to make payment obligations in another way. This is done using non-traditional tradelines.
Documenting a non-traditional tradeline requires you to show a track record of making on-time payments for at least 12 consecutive months.
Here are some examples of acceptable non-traditional tradelines:
- Rent payments
- Utilities (water, power, internet, cable)
- Auto or Renters insurance
- Monthly childcare
- School tuition or educational costs
- Phone bill (cell or landline)
- Gym memberships
Ultimately-- The stronger your track record is in paying your monthly obligations, the better your chance of loan approval will be in the absence of established credit history.
How Mortgage Credit Scores Are Determined
Credit scores are a numerical indication of your financial habits. A higher score points to on-time bill payments and smart management of your finances overall. A lower score indicates you’re less responsible with credit and may pose more risk to a mortgage lender.
To be clear: There’s no one single credit score. All three credit bureaus calculate scores in slightly different ways, and USDA lenders consider the middle score of these three when evaluating your application. In instances when only two scores are present, they'll use the lower of the two.
Scores are also always in flux. They can change monthly or even weekly based on your habits. Beyond habit, credit scores are influenced by a number of factors.
FICO scores — the most commonly known credit score — are scored based on these five items:
- Length of credit history
- Payment history
- Total amount owed
- Types of credit
- Credit inquiries in your name
If your credit scores are not where they need to be for a USDA loan, there are ways to improve them. Paying down debts, asking for a credit line increase, and alerting credit bureaus of any errors on your report can all help move the needle in your favor.
Are you eligible for a USDA home loan?
Talk to one of our USDA experts to see if you qualify.
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