You’ve probably heard the rumor that you need a 620 credit score to buy a house with a VA loan. It’s everywhere. Mortgage sites, forums, even some loan officers will tell you that’s the magic number. But here is the thing: the Department of Veterans Affairs doesn’t actually set a minimum credit score.
Seriously.
They don't.
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If you look at the VA Lenders Handbook (M26-7), you won't find a single mention of a "hard" cutoff at 620 or 580. The VA cares about whether you’re a reliable borrower with a "satisfactory credit risk," not just a three-digit number on a screen. This gap between what the VA says and what banks do is where most veterans get stuck.
When people talk about bad credit VA loans, they are usually fighting against "lender overlays." That’s just a fancy industry term for extra rules banks add on top of the government's rules to protect their own pockets. If a bank says no, it doesn’t mean the VA said no. It just means that specific bank is being picky.
Why Your Score Actually Tanked Matters More Than the Number
Most lenders are terrified of "recent" bad behavior. Honestly, if you missed a credit card payment three years ago because you were deployed or just forgot, most VA underwriters won't blink. They look for a pattern. If you have a 550 score but you’ve paid every bill on time for the last 12 months, you are in a much better spot than someone with a 650 who just missed their car payment last week.
The VA uses something called Residual Income. This is their secret weapon. Unlike FHA or conventional loans that focus almost entirely on your Debt-to-Income (DTI) ratio, the VA wants to know how much cash you actually have left at the end of the month after paying all your bills and estimated taxes.
If you have a lot of "leftover" money, the VA is often willing to overlook a lower credit score. They figure if you have $2,000 extra every month after the mortgage is paid, you’re a safe bet regardless of what happened with your Sears card in 2022.
The CAIVRS Hurdle
There is one thing that will kill a bad credit VA loan faster than a low score: CAIVRS. It stands for Credit Alert Interactive Voice Response System. If you owe the federal government money—think unpaid student loans, a previous foreclosure on a government-backed loan, or delinquent federal taxes—you're basically blocked. You have to clear that up or get on a documented payment plan before any lender will touch your file. It’s a non-negotiable "hard stop" in the system.
Dealing with Bankruptcy and Foreclosure
Let’s be real. Life happens.
If you’ve gone through a Chapter 7 bankruptcy, the VA "waiting period" is only two years from the discharge date. Compare that to the four years required for a conventional loan. If you went through Chapter 13, you might even be able to get a VA loan while you are still paying back the bankruptcy, provided you've made 12 months of on-time payments and get the court's permission.
Foreclosures? That’s usually a two-year wait too.
The VA is surprisingly forgiving here because they understand that military life involves unique stresses—PCS moves, spouse unemployment, and health issues. They want you in a home. The program was designed as a benefit for service, not a reward for having a perfect financial history.
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How to Find a Lender for a Bad Credit VA Loan
You can't just walk into a big national bank and expect them to manually underwrite a 540 score. They won't. They want "clean" files that fit into a neat little box so they can sell the loan quickly on the secondary market.
To get a bad credit VA loan approved, you need to find a lender that does Manual Underwriting.
Most loans are processed by a computer—an Automated Underwriting System (AUS) like Desktop Underwriter. If the computer says "Refer" instead of "Approve," most big-box lenders just quit. A manual underwriter is a real human being who looks at your letters of explanation, your bank statements, and your history to make a common-sense decision.
- Look for smaller mortgage brokers. They often have access to "wholesale" lenders who specialize in "tough" VA files.
- Ask about their minimum score. If they say 620 and won't budge, move on. Some lenders go down to 500, though 550–580 is the more common "floor."
- Be ready for "compensating factors." If your credit is low, the underwriter will want to see a big "pro" to outweigh the "con." This could be a large amount of cash in savings (reserves), a very low DTI, or a significant increase in your housing payment that you can clearly afford.
The Cost of Low Credit: It Isn't Free
I have to be honest with you. Getting a VA loan with a 580 score is going to cost more than getting one with a 740. You’ll likely pay a higher interest rate. You might also have to pay "points"—which is just a way of saying you pay more money upfront at closing to get the lender to take the risk.
However, since VA loans require $0 down, many veterans find that paying a few thousand dollars in points is still cheaper than the 3.5% down payment required for an FHA loan or the 5% to 20% for a conventional one.
The Refinance Strategy
A lot of people use the VA Interest Rate Reduction Refinance Loan (IRRRL) as a "get out of jail free" card later on. Basically, you take the higher-interest loan now just to get into the house. Then, you spend the next 6 to 12 months obsessively fixing your credit. Once your score is up and you've made six on-time payments, you can "IRRRL" into a much lower rate with almost no paperwork and no new credit check in some cases. It's a bridge strategy.
Common Myths That Sink Applications
People think they need a certain amount of time at a job. Not necessarily. If you just retired from the military and started a civilian job in the same field, that counts as continuous employment. The VA is very cool about the transition from active duty to civilian life.
Another myth: "I need to pay off all my collections first."
Wait!
Don't just start throwing money at old debt. Sometimes, paying off a five-year-old collection can actually drop your credit score because it "re-ages" the debt and makes it look like a recent negative event to the credit algorithms. Always talk to your loan officer before settling old accounts. An underwriter might be fine with a $500 medical collection staying exactly where it is.
Specific Actions to Take Right Now
If you are staring at a low score and want a house, don't just wait for it to magically go up.
1. Pull your own reports. Go to AnnualCreditReport.com. It’s free. Look for errors. Veterans often have issues with "split" files or medical bills from the VA that were supposed to be paid by the government but ended up on their personal credit. Dispute those immediately.
2. Focus on "Credit Utilization." This is the fastest way to bump a score. If your credit cards are maxed out, your score will be suppressed. Even paying a $1,000 balance down to $300 can swing your score by 30 or 40 points in a single month.
3. Build "Verification of Rent" (VOR). If your credit is bad, the underwriter will want to see that you’ve paid your rent on time for the last 12 months. If you’re renting from a big complex, they can just sign a form. If you’re renting from a private landlord, you must pay by check or electronic transfer. Cash is invisible to an underwriter. They won't take your word for it.
4. Keep your "Residual Income" high. Don't go out and finance a new truck right before you apply for a mortgage. Every $100 in monthly debt eats away at the "risk-offsetting" power of your income.
5. Get a Letter of Explanation (LOE) ready. Don't be vague. "I had some hard times" won't cut it. "I was hospitalized for three weeks in June 2023, which led to a loss of income, but I have been back at work and current on all bills since August 2023" is what an underwriter needs to see.
The VA loan is arguably the best mortgage product in the world. It has no mortgage insurance (PMI), no down payment requirement, and the most flexible underwriting in the industry. Your credit score is a snapshot, not a life sentence. If one lender tells you no, it’s not the end of the road. It’s just a sign you need to find a lender who actually understands the VA's mission to serve those who served.
Stop looking at the big national banks with the catchy commercials and start looking for a specialized VA mortgage broker who knows how to handle manual underwriting. That is the quickest path to a set of keys.