USDA loans are one of the cheapest types of home loans, they offer 100% financing (no down payment) and have a lower mortgage insurance rate than other mortgage loans.

In this article, we’ll take an in-depth look at the credit requirements for USDA Loans.

Rate Search: Check Today’s USDA Loan Rates

What are USDA Loans?

The US Department of Agriculture created the USDA loan program to improve the economy and quality of life in rural America. The USDA finances 100% of the sales price and has the lowest mortgage insurance premiums (MIP) of any mortgage. Low-to-median income homebuyers in rural parts of the county whose income does not exceed 115% of the area median income may be eligible.

USDA Loan Requirements

  • 640 minimum score
  • Maximum 50% DTI ratio
  • Income less than 115% of AMI
  • For primary residences only
  • The home is located in a USDA-eligible location


USDA Credit Requirements

The minimum credit score needed for a USDA loan is 640. However, lenders look at more than just your FICO score. They take your entire credit history into consideration. This means things such as payment history, collection accounts, and the amount of debt you carry can have a big impact on whether you qualify.

  • Minimum 640 credit score
  • No more than one 30 day late payment in the past 12 months
  • No late mortgage payments in the past six months
  • 24 month waiting period after a bankruptcy or foreclosure
  • Collections, judgments, and federal debt must be paid or on a payment plan

 

How the Minimum USDA Credit Score Compares to Other Loans

To qualify for the USDA home mortgage program, you will need a 620 FICO score; some lenders require much higher scores. But, how do the minimum credit requirements compare to other popular types of mortgage loans?

Loan Type

Min Credit Score 

Down Payment

FHA Loan

580

3.5%

VA Loan

580

0%

USDA Loan

620

0%

HomeReady / Home Possible Loan

620

3%

Conventional Loan

620

5% - 20%

FHA 203k Rehab Loan

640

3.5%

Conventional 97 Loan

680

3%

Piggyback Loan

680

10%

Jumbo Loan

680

20% - 30%

If you do not meet the credit requirements for the USDA loan program, you may qualify for an FHA loan.

Improve Your Credit Before Applying

Since your credit score is the main factor in determining your mortgage rate it’s highly recommended you work on improving your credit score before applying for a mortgage.

The lower the credit score a borrower has, the higher risk they present to the mortgage company. Higher risk means mortgage lenders have to charge a higher rate and more fees to help offset the risk. Before you apply for a USDA mortgage, work on increasing your credit score as much as possible.

Steps to Improve your Credit Score

Pay down credit card debt

Your credit utilization ratio is the amount of available credit you're using; it accounts for 30% of your overall FICO score. Try to pay your balances to less than 10-15% of the card's limit.

Don't apply for credit

Do not apply for new lines of credit or loans. Too many credit inquiries can lower your credit score. You're also adding debt to your report, which can negatively affect your score.

Pay your bills on time

Your payment history accounts for 35% of your overall score. Don't miss a payment on any bills, set up auto-pay to ensure you don't miss any payments.

Dispute Innaccurate Items

You can dispute accounts you don't believe are accurate with the credit bureaus directly. They will investigate the account and must either verify it or delete it within 30 days.

Get added as an authorized user

If you know someone who has a credit card in good standing with no negative account activity ask them to add you to their account as an authorized user. The entire account history will be added to your credit profile which can increase your credit score.

How Credit Scores are Calculated

There are several factors that make up how your credit scores are calculated. Let’s look at the five factors FICO, the credit scoring model used by lenders, uses to calculate scores.

How Your Credit Score is Calculated

35% Payment History

Payment history is how well you pay your bills on time. This includes late payments and collection accounts.

30% Credit Utilization

The amount of available credit you're using is called your credit utilization ratio. Try to keep your credit utilization ratio below 25%.

15% Length of Credit

The longer your accounts stay open, the better your score will be. Don't close credit cards is possible.

10% Types of Credit

A mix of credit accounts such as credit cards, auto loans, mortgages will help improve your credit score.

10% Credit Inquiries & New Accounts

When a lenders pulls your credit it creates a hard inquiry. Multiple inquiries hurt your score count against you for 12 months.

The Bottom Line

USDA home loans are a great program designed to develop rural parts of the country. With no down payment and a low mortgage insurance rate, these loans are the best options for home buyers that meet the requirements.

Lenders have a high credit score requirement because financing 100% of a property is risky. However, some lenders have low credit requirements for USDA rural development loans, allowing borrowers with a 620 FICO score to qualify.

Do you have a 620 credit score and want to see if you qualify for a USDA loan?

Speak to our Network of Lenders and get Pre-Approved Today