VA Loans and Credit Scoring: An In-Depth Look

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Mortgage lenders can require a minimum score on VA loans, but did you know the VA actually doesn’t require a specific score? It’s true. Other programs may require a minimum score, but not the VA. The VA does require the lender however to verify a responsible credit history and they do so by reviewing a credit report along with requesting credit scores. How do credit scores work and what makes them rise or fall?

Credit scores have been around for years but really came into play for the mortgage industry in the late 1990s. Then, credit scores would appear on credit reports but at the time mortgage lenders didn’t use them to approve a mortgage. Just a few short years later that all changed and today, most mortgage lenders ask for a minimum VA credit score of 620 although there can be exceptions for lower scores. These three digit scores ranging from 300 to 850 review five different aspects of a consumer’s credit trends- payment history (35%), available credit (30%), length of credit (15%), types of credit (10%) and credit inquiries (10%).

The single biggest impact on your score is your payment history. When payments are made on time over time scores will gradually improve. Yet they will fall if a payment is notched at more than 30 days past the listed due date. A single late payment over the past two years will have little impact but recent such lates will negatively affect a score. Payments made more than 60 and 90 days will make scores fall even further.

Available credit compares outstanding debt to credit limits. The ideal balance-to-limit percentage is approximately one-third of credit lines. If credit limits are at $10,000 then a $3,000 balance will help scores while a higher amount will gradually diminish a score. Should the balance actually exceed the credit limit scores will drop even more.

The length of credit means how long someone has used credit. The longer someone has used credit helps scores compared to someone new to the borrowing scene. Types of credit awards those responsibly using different types of credit while credit inquiries reflects how many times the consumer has recently requested new credit.

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