How to Get a USDA Loan with Bad Credit

Key Takeaways

Most lenders require a 640 credit score, but the USDA does not set a hard minimum. Scores below 640 can still qualify through manual underwriting.
Your full financial picture matters. Lenders weigh payment history, DTI, and employment history alongside your score. A clean payment record can outperform a higher score with recent late payments.
Bad credit is not an automatic disqualifier. Borrowers with scores as low as 500 have qualified through manual underwriting with strong compensating factors like cash reserves and consistent payment history.

USDA loans are designed to make homeownership more accessible, including for borrowers with less-than-perfect credit. Even with a low credit score, you still have options, including a USDA home loan.

USDA loans, by design, make homeownership more accessible to Americans. Not only can borrowers get one with no down payment, but USDA loans also have looser credit standards and income requirements than other mortgage loans, making them an ideal choice for buyers with imperfect credit scores. That doesn’t necessarily mean you can get a USDA loan with a 500 credit score, but the approval threshold may be lower than you think.

This article explores how your credit can impact USDA loan approval, how to get a USDA loan with bad credit, and ways to improve your credit score.

What Credit Score Do You Need for a USDA Loan?

A credit score is essentially an assessment tool – a grade of how well you’ve managed and paid off your past debts, as well as how you’re tackling any current debt. FICO credit scores range from 300 to 850. The higher your score, the greater your chances of approval for a USDA loan and at a more desirable interest rate.

For a mortgage lender, your score represents your ability to repay the money they lend. A higher score indicates you pay your bills on time, have low debt levels, and will more than likely fulfill your debt obligations. While lower scores don’t necessarily mean the opposite, they do give lenders reason to pause and consider an applicant more stringently.

Keep in mind that every lender sets their own criteria for evaluating borrower credit. While one lender may only consider borrowers with credit scores of 720 or higher, another lender may accept credit scores as low as 580 or less.

USDA Loan Credit Score Requirements

The USDA does not set an official minimum credit score requirement. However, most USDA-participating lenders prefer a credit score of at least 640, which is the lowest score allowed by the USDA's Guaranteed Underwriting System (GUS). GUS is a computerized tool that helps lenders assess credit risk and automate the evaluation process. Applicants with scores below 640 may still qualify, but they typically must undergo manual underwriting.

Aside from your score, USDA lenders also want to see a strong payment and employment history, as this indicates a greater likelihood of repaying your loan. They also carefully review your total debt-to-income (DTI) ratio, which compares your major monthly debts to your gross monthly income.

Your credit score gives a quick snapshot of your overall creditworthiness, while your credit reports dive deeper into your history, showing if you’ve missed payments, had any bankruptcies, or if there is anything unusual that could raise a red flag. They want to see a responsible approach to debt management.

Payment history carries more weight than most borrowers realize. A 650 credit score with a clean, consistent payment history will often perform better in USDA underwriting than a 670 score with a recent late payment.

What if my credit score's below 640?

Borrowers with a credit score below 640 can still qualify for a USDA loan, but the application goes through manual underwriting. This process takes longer and involves closer scrutiny of your overall financial picture. In some cases, borrowers with scores in the 500s have qualified this way, but the strength of your overall application matters significantly. To strengthen your case, lenders look for compensating factors, such as:

Solid cash reserves
Strong job history
History of on-time payments, including rent payments
Low credit utilization

The lender considers factors such as your overall debt load, employment history, and the reasons for any recent credit issues. If your credit problems are due to a one-time event, such as a layoff or high medical expenses, the lender may consider this and approve your loan if other aspects of your financial situation are solid.

If manual underwriting is required, you must:

Show 12 months of clean payment history, particularly on installment debts and rent payments (if applicable)
Document non-traditional credit, like utility bills or cell phone payments, if your credit is thin
Have a DTI ratio no higher than 41%, unless you have strong compensating factors

Can You Get a USDA Loan With a 500 Credit Score?

While USDA loans typically require a 640-plus credit score for automated underwriting, borrowers with scores down to 500 can still qualify through manual underwriting. Lenders weigh those compensating factors alongside your FICO score. By clearly documenting these underlying strengths and working with a USDA-approved lender who specializes in manual reviews, applicants with a 500 credit score can make a stronger case for approval and move one step closer to affordable homeownership.

Building Credit for a USDA Loan

If your credit score isn't where it needs to be, you can take concrete steps to strengthen your credit score before applying.

How to Improve Credit

To up your score, follow these best practices:

Pay down credit card balances to under 30% of your credit limit, ideally under 10%.
Pay off high-interest debts first to improve your overall creditworthiness.
Make all payments on time for at least 12 months with no exceptions. Setting up automatic payments is the simplest way to ensure this.
Review your three free credit reports and dispute any inaccuracies you find.
Become an authorized user on a family member's well-managed credit card.
Keep good records of utility and rent payments if you lack traditional credit.
Address any collection accounts by paying them off or setting up a payment plan.
Keep older accounts open, as a longer credit history works in your favor.

Things to Avoid

You can also improve your score, or at least prevent it from dropping, by following these proven tips of what to avoid:

Late payments. Payment history is the single biggest factor in your score, and one missed payment can set you back significantly.
Opening new credit cards, loans, or lines of credit before applying. Each application results in a hard inquiry that can temporarily lower your score.
Large purchases on credit before applying for a home loan.
Maxing out credit cards. High utilization hurts your score quickly.
Switching jobs before closing. Lenders want to see a stable employment history.
Paying off old collections right before applying, unless your lender specifically recommends it, as this can sometimes temporarily lower your score.
Co-signing on anyone else's loan. It adds to your DTI and appears on your credit report, which can reduce your eligibility.

USDA Loans and Bad Credit: Not a Problem

A rocky credit history doesn't have to stand in the way of homeownership. USDA loans offer some of the most flexible credit standards available, and with the right preparation, approval is more attainable than many borrowers expect.

If your score needs work, the time you spend improving it before applying will pay off in both your approval odds and your interest rate.

Ready to start? Talk with a USDA loan specialist to understand where you stand and what steps make the most sense for your situation.