Kentucky USDA Loan Credit Score Requirements and Guidelines
This attachment illustrates the approach to reviewing credit history when a loan is
manually underwritten by an approved lender.
Credit score over 680:
Perform a basic level of underwriting to confirm the
applicant has an acceptable credit reputation. Perform additional analysis if the
applicant’s credit history has indicators of unacceptable credit as noted in Paragraph 10.7
of this Chapter.
Credit score 679 to 640:
Perform a comprehensive level of underwriting.
Underwrite all aspects of the applicant’s credit history to establish the applicant has an
acceptable credit reputation. Credit scores in this range indicate the applicant’s
reputation is uncertain and will require a thorough analysis by the underwriter of the
credit to draw a logical conclusion about the applicant’s commitment to making
payments on the new mortgage obligation. The applicant’s credit history should
demonstrate his or her past willingness and ability to meet credit obligations.
Credit score less than 640:
Perform a cautious level of underwriting.
Perform a detailed review of all aspects of the applicant’s credit history to establish the applicant’s
willingness to repay and ability to manage obligations as agreed. Unless there are
extenuating circumstances documented in accordance with this Chapter, a credit score in
this range is generally viewed as a strong indication that the applicant does not have an
acceptable credit reputation.
Little or no credit history:
The lack of credit history on the credit report may be
mitigated if the applicant can document a willingness to pay recurring debts through
other acceptable means such as third party verification's or cancelled checks. Due to
impartiality issues, third party verification's from relatives of household members are not
permissible. Lenders can develop a Non-Traditional Credit Report for applicants who
do not have a credit score in accordance with Paragraph 10.6 of this Chapter.
An applicant with an outstanding judgment obtained by the United States in a
unless otherwise stated in this Chapter.
Low credit score loan requests with scores 639 to 580 or below
A credit exception with supportive documentation
confirming the circumstances leading to derogatory credit that attributed to the low credit
score is required for all loans receiving a credit score of 639 or below. Circumstances
must meet criteria, as outlined in Section 10.8 of this Chapter to be eligible for a credit
exception.
confirming the circumstances leading to derogatory credit that attributed to the low credit
score is required for all loans receiving a credit score of 639 or below. Circumstances
must meet criteria, as outlined in Section 10.8 of this Chapter to be eligible for a credit
exception.
Loans with credit scores of 580 or below should not be approved.
Age of Credit Report or how long is my credit approved for?
Any credit report must: Not be more than 120 days old when the loan is closed;
Description Scoring Model Code Used for Fico Score
In obtaining those scores, the following scoring models are recognized in the
Agency’s automated underwriting system in the order listed. Any model other than the
source noted below will not be recognized by the system.
Validating the Credit Score to Establish the Applicant’s Credit Reputation
GUS Accept loans do not require credit score validation.
NEW: Deferred loans are eligible trade lines to validate a credit score. The history of non‐payment,
increase of balance owned, etc. are reflected in the credit score.
NEW/Clarification: GUS Refer, Refer with Caution, and manually underwritten loan files are not
eligible for debt ratio waivers if: 1. There is not one applicant with a validated credit score using
traditional trade lines on the credit report or 2. The file requires non‐traditional trade lines.
Collection Accounts
Reminder: USDA does not require medical collections to be paid.
If the cumulative total of all non‐medical collections exceeds $2,000, one of the three listed
options in this section of the matrix must be met.
NEW: A credit exception is not required for GUS Accept (this is not new for GUS Accepts files, it is
provided as a clarification), Refer, Refer with Caution, or manually underwritten loan files when the
required payoff or monthly payment is included in the monthly debts.
Disputed Accounts
Comparison of 10.11 to Non‐Derogatory and Derogatory Disputed Accounts:
NEW: There are two sections for disputed accounts: Non‐Derogatory Disputed Accounts and
Derogatory Disputed Accounts. Below are some highlights of both account types.
Non‐Derogatory Disputed Accounts:
NEW: In addition to the current four methods to retain a GUS Accept without the need for a
downgrade, three additional criteria have been added to provide additional flexibility:
The payment stated on the credit report is included in the monthly debts;
A documented payment from the creditor is included in the monthly debts; or
Five percent of the stated account balance on the credit report is included in the monthly
debts.
NEW: GUS Refer, Refer with Caution, and manually underwritten files must include one of the
following:
The payment stated on the credit report;
Five percent of the loan balance of the account; or
A lesser amount documented from the creditor.
NEW: No credit exception is required for GUS Refer, Refer with Caution, or manually underwritten
loan files.
Disputed Derogatory Accounts:
NEW: Lenders may exclude the following disputed accounts to arrive at a cumulative total of
disputed derogatory accounts that must be considered in the monthly debts:
Disputed medical accounts/collections;
Charged‐off accounts;
Disputed derogatory accounts that are the result of identity theft, credit card theft, or
unauthorized use when evidence is provided to support the applicant’s explanation; or
Accounts of a non‐purchasing spouse in a community property state.
NEW: GUS Accept files with less than $2,000 in disputed derogatory accounts must include a
minimum monthly payment for each account:
The payment stated on the credit report;
Five percent of the balance of the account; or
A lesser amount documented from the creditor.
The following slides will highlight a few key credit requirements.
• Credit requirements may vary for loans underwritten with the assistance of the GUS compared
to those that are manually underwritten.
• Lenders and investors may impose overlays. A common overlay is credit score requirements.
Rural Development does not have a minimum published credit score, but many lenders do.
• It is the lender’s responsibility to determine the creditworthiness of their applicant. In some
cases of adverse credit, the lender’s underwriter can grant credit exceptions.
• There are a few instances of adverse credit that a lender cannot waive which include delinquent
non‐tax Federal debt, delinquent child support, previous USDA losses, and a CAIVRS claim
indicating the applicant is delinquent on federal debt.
Credit Scores and Validation
• The credit score will assist the GUS in determining the appropriate underwriting recommendation.
• The GUS will not accept credit scores impacted by Experian Boost.
• GUS loans receiving an “Accept” recommendation do not require credit score validation.
• GUS loans receiving a “Refer” or “Refer with Caution” recommendation and manually underwritten files
do require credit score validation.
• The lender must be able to validate the score of at least one applicant whose income and/or
assets is used to originate the loan.
• There must be a minimum of 2 tradelines with a 12 month history to validate a credit score.
Tradelines can be open, closed, and/or paid in full.
• Eligible tradelines can include but are not limited to: secured and unsecured loans, revolving
accounts, installment loans, credit cards, collections, and charge off accounts.
• Ineligible tradelines include: public records, disputed accounts, and self‐reported accounts.
• Eligible tradelines on the credit report and non‐traditional tradelines can be combined to meet
the cumulative tradeline number requirement.
• If there are no eligible tradelines on the credit report, non‐traditional credit must be verified.
Credit Inquiries/Recent Debts/Undisclosed Debts
• Lenders must ensure debts for new installment or revolving accounts are manually entered into
GUS.
• Adverse credit does not always mean an applicant is unable or unwilling to meet their financial
obligations.
• Sometimes bad things happen to good people.
• An unexpected loss of job, reduction of benefits, illness, divorce; all of these unfortunate events
can have a negative impact on credit.
• Credit exceptions are NOT required for GUS loans that receive an Accept underwriting
recommendation.
• For loans that receive a Refer or Refer with Caution underwriting recommendation, when it can
be documented the event was temporary and beyond the applicant’s control and the applicant’s
situation has improved, the lender may consider granting a credit exception.
• USDA does not approve the lender’s credit exception. Lenders are responsible for their credit
decisions.
Non‐Traditional Credit
• Not everyone chooses to use traditional credit and that’s ok.
• There are many non‐traditional credit sources that can be verified to establish an applicant’s
credit history.
• Applicants with a 12 month VOR require two non‐traditional tradelines, the VOR plus one
additional tradeline.
• Applicants without a 12 month VOR require three non‐traditional tradelines.
• Eligible tradelines must have a 12 month history and have been closed no more than 6 months
prior to loan application.
• Examples include but are not limited to: rent or housing payments, utility services, cell phone,
insurance payments, childcare, and auto leases.
Child support, alimony, or other court ordered debts as well as monthly subscription services such as gym memberships are not eligible non‐traditional tradelines.Recent and Undisclosed Debts and Increased Balances of Existing Debts
Credit Accounts and Adverse Credit
• Authorized user accounts do not require a monthly payment be included in the debt ratio.
However, lenders may include a payment at their discretion.
Chapter 7 Bankruptcy
• A Chapter 7 bankruptcy that is discharged or dismissed more than 36 months at the time of loan
application is not considered adverse credit.
• If the bankruptcy is less than 36 months, a credit exception is required if the GUS underwriting
recommendation is a “Refer” or “Refer with Caution” or the file is a manually underwritten file.
• If the bankruptcy included a mortgage, the lender must include any debt that the applicant may
still be liable for such as real estate taxes and home owners insurance.
Chapter 12 or 13 Bankruptcy
• When there is a Chapter 12 or 13 Bankruptcy plan in progress and the GUS loan receives an
“Accept” recommendation, the lender must confirm all payments are included on the Assets and
Liabilities application page.
• Neither a GUS downgrade nor a credit exception are required.
• If the loan receives a “Refer” or “Refer with Caution” underwriting recommendation or is a
manually underwritten loan, the lender must retain the bulleted list of items shown on this slide.
• If the plan has been completed for 12 months prior to loan application, nothing further is
required regardless of underwriting recommendation.
Charge‐Offs
• If there are charge‐offs, the lender’s underwriter must determine if the credit risk is acceptable.
• Charge‐offs are not required to be paid; however, if there is a repayment plan in place, the
payment must be included.
Collections
• The lender’s underwriter must review all collection accounts and determine if it is an acceptable
credit risk regardless of the GUS underwriting recommendation.
• If the cumulative total of all non‐medical collections exceeds $2000, the lender must:
1. Require payment in full of these accounts prior to closing
2. Use an existing repayment agreement amount OR
3. Include five percent of the outstanding balance.
• All open collections must be listed on the Asset and Liabilities GUS page and noted and marked
accordingly.
• A credit exception is not required for collection accounts regardless of the GUS underwriting
recommendation.
Consumer Credit Counseling Debt Management Plans
• Lenders must include the monthly payment amount in the monthly liabilities and must retain the
bulleted list of items shown on this slide.
Delinquent Court Ordered Child Support
• Applicants currently delinquent on court ordered child support are ineligible unless they have an
approved repayment agreement and have made 3 timely, consecutive payments.
Delinquent Federal Non‐Tax Debt
• Applicants with delinquent Federal non‐tax debt are ineligible until the debt is paid in full or a
release of liability is documented.
• Applicants currently delinquent on federal tax debt are ineligible for a guaranteed loan unless
they have a repayment plan approved by the IRS or pay the total delinquent amount in full prior
to closing.
• A minimum of 3 timely, consecutive payments must have been made and the applicant
cannot prepay a lump sum at one time to equal 3 monthly payments.
• An IRS approved extension to file a tax return does not grant the applicant additional time to pay
their taxes that are due.
• Applicants must pay their estimated income taxes due by the filing date or they are considered
delinquent.
Non‐Derogatory Disputed Accounts
• The lender’s underwriter must review disputed accounts and determine if the debt continues to
be due from the applicant.
• A GUS “Accept” recommendation may be retained if one of the items on the bulleted list of
items shown on this slide is obtained.
• GUS “Refer”, “Refer with Caution”, or manually underwritten loans with non‐derogatory disputed
accounts require the following:
• The applicant to provide the lender with documentation to support the reason and the basis of
the dispute. The lender must determine the impact that the debt will have on repayment of the
proposed mortgage debt.
• Each account must include the payment stated on the credit report, five percent of the balance, or
a lesser documented payment amount from the creditor.
Derogatory Disputed Accounts
• The lender must consider non‐medical collections and accounts with late payments in the last 24 months.
• For all loan types, the lender may exclude the following:
• Disputed medical accounts and collections
• Charged off accounts
• Disputed accounts that are documented to be the result of identity or credit card theft
• Accounts of a non‐purchasing spouse in a community property state.
• A GUS “Accept” loan with less than $2000 in disputed derogatory accounts will require the lender to
determine if the accounts impact the applicant’s repayment ability. Each account must include a payment.
• A GUS “Accept” loan must be downgraded to a “Refer” when the applicant has a cumulative total of
$2000 or more in disputed derogatory accounts.
Garnishments
• Garnishments must be included in the debt ratio and manually added to the Asset and Liabilities GUS
application page.
• Lenders must review the type of garnishment to ensure the applicant remains eligible.
Non‐Federal Judgment
• Court ordered judgments must be paid in full or have evidence timely payments are made per an
agreement with the creditor.
• Include the monthly payment in the debt ratio.
• Lenders must ensure the Declarations in the GUS are accurately reflected.
Deed‐in‐Lieus, Foreclosures, and Short Sales
• Lenders must ensure the Declarations in the GUS are completed accurately.
• A deed‐in‐lieu recorded, foreclosure discharged, or short sale closed 36 months prior to the date
of loan application is not adverse credit.
• If the loan receives a GUS “Accept” underwriting recommendation, neither a GUS downgrade
nor a credit exception is required.
• A credit exception is required if a deed‐in‐lieu, foreclosure, or short sale occurred within the
past 36 months and the GUS underwriting recommendation is a “Refer” or “Refer with
• A deed‐in‐lieu, foreclosure, or short sale that occurred post divorce or legal separation and the
home was awarded to the other party will not count adversely against the applicant if
documentation evidences the debt was current at the time the home was awarded to the other
party.
Previous USDA Loss
• A lender cannot waive adverse credit for an applicant whose previous Rural Development Direct or
Guaranteed home loan resulted in a loss to the agency. Only a Rural Development official may grant this
exception.
• Rural Development will perform its review after the lender’s underwriter has approved the loan and has
processed the final GUS submission.
• The applicant and lender must provide a letter of explanation and supporting documentation as required
in Attachment 10‐A.
Rent/Mortgage Payment History
• An applicant’s current rent or mortgage payment history is a good indicator of the probability of their
future mortgage payments.
• A GUS “Accept” file does not require a verification of rent or mortgage.
• A GUS “Refer”, “Refer with Caution”, or manually underwritten loan may require a verification of rent or
mortgage. The lender will refer to their GUS Underwriting Findings Report to determine if it is required.
• If a full 12 month verification is not available, the lender may utilize the time period that is
available.
• One rent or mortgage payment that was 30 or more days late in the past 12 months is significant
derogatory credit and will require a credit exception from the lender’s underwriter.
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