What Does my Credit Score Have to be?
Congratulations, you’ve officially opened a can of worms. If you’ve asked this question before, you probably realize that you’re about to hear something different than you heard when you asked someone else. Every lender has different requirements, and even different ways of handling credit scores, each tailored to fit what that lender feels works best for their borrowers and their business model. The Department of Veteran’s Affairs sets no requirements on a VA-eligible borrower’s credit score. If the VA-approved lender is willing to finance the loan, then the VA is willing to guarantee it. The VA does its best to not interfere more than it thinks is necessary in the mortgage process, and not dictating a credit score is one way that they ease the regulatory burden on lenders and make it so they are never the “bad guy” if a veteran does not get approved for the loan. Brilliant, I’d say.
So, on to what really matters: credit score minimums set by lenders. This is where you’ll hear a different answer every time, because each lender has their own requirements. Most VA lenders have a set number that they will not approve anything below, and anything close to the minimum may be subject to extra scrutiny. In the case of many lenders, this minimum is 620. If that number makes no sense to you, here’s a basic scale:
- 580 or lower (Poor Credit)
- 580-620 (OK Credit)
- 620-660 (Good Credit)
- 680-720 (Great Credit)
- 720 plus (Excellent Credit).
In other words, 620 is right on the line between poor credit and OK credit. The main problem with having a hard minimum set like 620, is that good, creditworthy individuals may have had something bad happen to them that has set their credit score back. A common example of this is when an injury or medical emergency happens and the medical bills are negatively affecting a credit score. Heck, just the expenses of having a baby can have a drastic effect. This is one way that LowVARates is different from many other lenders – we have no set minimum acceptable credit score. Obviously, a score in the low 600s will be under more scrutiny than a score approaching 800, but no applicant is ever denied based on nothing but his or her credit score. We have this approach because we know that bad things happen to good people, and we know that behind every number is a lifetime of history, and a single snapshot never tells the whole story. So even though a 620 minimum is still actually quite borrower-friendly compared to other loan programs, we do not use a set minimum or what is considered “industry standard”.
If your credit is poor, be prepared for a higher interest rate or closing costs, though. While this does not always happen (sometimes we are able to secure the same interest rate and fees as for someone with great credit), it can be a way to mitigate the risk of making the loan. Some potential borrowers are actually a bit turned off by the fact that we don’t necessarily adhere to the accepted industry standard. Like as not, this has to do with the many scams out there that say things like “we offer credit amnesty” and “get approved even with bad credit”, but the fact is that we at LowVARates believe we are working with people, not numbers, and if we can do more people more good by looking beyond a number to their actual behavior and commitment, then that is what we will do. No one’s asking you to believe us, but our customer satisfaction says it all.
We mentioned above that even the 620 minimum is quite borrower friendly compared to other loan programs. While FHA loans usually carry the same 620 minimum, USDA loans usually require at least a 660, while conventional loans usually look for something in the 740 range. Anything under 740 is usually subject to additional scrutiny and subsequent fees, if it is approved at all. So even if you choose a different VA-approved lender than LowVARates, a VA loan is far easier to qualify for than a conventional loan.