No Credit History: Is the VA Home Loan Still an Option?

VA home loans are approved in much the same manner as other government-backed and conventional loans. You know the drill: A lender assesses your ability to repay, makes sure you have enough cash available to take care of closing costs and takes a close look at your credit report.

Just a Tad About Credit

Before credit scoring was a thing, a lender would pore over an individual credit report, line by line, to check payment history, loan balances and minimum monthly payments. (Can you imagine?!) Today, this work is done electronically and represented by a three-digit number that can range from 300 to 850. VA doesn’t have any minimum credit score requirement, but most VA lenders today ask for a minimum score of 620 (or lower, depending on the lender).

Lenders request credit scores from Experian, Equifax and TransUnion. Although all credit reporting agencies use the same algorithm to calculate scores, scores vary, as creditors may not subscribe to all three agencies, send payment history data to only one agency or report a customer’s payment histories at different times to different agencies. Lenders will use the middle of these three scores to determine eligibility. In the case of co-buyers, a lender typically uses the lowest middle score when evaluating the loan application.

A Way Around ‘No Credit History’

But what if you’re just starting out? You’ve got a new job, no credit or maybe only one credit card to your name. If there isn’t enough data available to properly calculate credit scores, a lender may rely on what’s called “alternative credit” when reviewing a home loan application. For instance, a lender can accept 12 months of timely mobile phone payments or take a look at your utility bill payments. Statements are easy enough to get: Just call up your utility companies and cell phone carrier and ask.

Reviewing Data to Make a Decision

A lender will review statements and compare the payments made and the due dates. If there are any payments made more than 30 days past the due date, it’s very likely the lender will not approve the loan, especially if the applicant has little to no credit history.

While VA doesn’t require a minimum number of active lines of credit on a credit report, most lenders ask for at least one, if not two. Which means: Just because one lender turns down a request for credit doesn’t mean another lender will make the same decision.