VA lenders will take a look at your credit score to help determine if you're a good candidate for a VA loan. But what happens when you have no credit history?
If you're a Veteran and are looking to get a VA loan with no credit history, you may be wondering if it's possible. The short answer is yes, it’s possible to get a VA loan without having established credit. However, if you have no credit history, or your credit score is below the required minimum, you may need to rely on alternative methods to prove your creditworthiness.
Let’s take a look at how you can get a VA loan without a credit score.
Getting a VA loan with no credit history can be difficult, but it is possible. Your lender will likely need you to provide alternative tradelines to prove your creditworthiness or to have a co-signer on the loan.
Alternative tradelines are simply monthly payments that don’t report to the credit bureaus, but can be used to show lenders that you're able to consistently pay your bills in full and on time. Some examples of alternative tradelines include rent, utilities, insurance, storage units, and cell phone bills. Policies and guidelines can vary by lender, but they usually want to see several different types of tradelines with a 12-month history.
Note: If you have fewer than three alternative tradelines, a Veterans United underwriter may require additional information.
Another option for Veterans without a credit history is using a co-signer on your VA mortgage.
If you don't have a credit history and are having trouble finding a lender to accept your alternative tradelines for loan approval, you might also consider adding a co-signer to your loan. Unlike a co-borrower, a co-signer doesn't officially share the debt but does promise to pay the mortgage if you default on the loan. A co-signer offers the lender extra protection and can factor in their credit score to help account for your credit history.
Unlike traditional mortgages, however, VA loans have restrictions on cosigners. According to VA rules, only a spouse or an unmarried member of the military can cosign a VA loan.
VA mortgage lenders use credit scores to see how diligent you are at keeping up with your bills over time. Your credit score reflects a range of factors including your payment history, how much credit you’re using compared with the total amount you have available, and how many credit cards and loans you already have.
A high score shows lenders you can be trusted to repay your debts. It's important to remember that the VA doesn’t set a minimum score; instead, the VA instructs lenders to look at a borrower's full financial profile before making decisions.
Most VA lenders do set their own internal credit benchmarks, which is typically a 620 credit score.
Building a credit history can take time, especially if you’ve never had a loan or credit card before. One of the easiest ways to build your credit score is by opening a credit card in your name and making one or two small purchases each month. The goal is to use the account regularly while still keeping as much credit available as possible. This is one of the primary factors in calculating your credit score.
Another option is becoming an authorized user on someone else’s credit card account, but this comes with some additional risks. Tying your credit to an account you don’t completely control means that your scores could also take a hit if the account owner maxes out the card or misses a payment.
Regardless of which route you choose, building your credit score is always going to be a smart financial decision and will help your chances of getting approved for a VA loan once you’re ready.
Can you get a VA loan with no credit? Potentially. By using alternative tradelines that show a strong history of paying your bills, you might be able to secure a VA mortgage. In the meantime, you can always work to build your credit to make yourself a more attractive borrower in the future.
A VA loan is a mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs. Here we look at how VA loans work and what most borrowers don’t know about the program.
Your Certificate of Eligibility (COE) verifies you meet the military service requirements for a VA loan. However, not everyone knows there are multiple ways to obtain your COE – some easier than others.