How to get a loan with bad credit

Bad credit doesn’t mean that you can’t get approval for a home loan. While your credit score does play a big part in the mortgage process, there are several loan options if your score isn’t where you want it to be. 

As of 2024, the average FICO score in the U.S. was 717, but there are many reasons why your credit score might be lower. If you don’t have time to improve your score before starting the mortgage process, there are loans you could consider. 

To find out which home mortgages you could qualify for with your current credit score, discuss your options with a lender. 

Credit scores are based on a range from 300-850 but depend on where you get your credit score from: FICO or VantageScore. Both are based on the same range with the higher the number being a better score and indicating lower risk to lenders. 

With a FICO score, most lenders will consider a borrower to have bad credit if their score is lower than 580. A VantageScore credit score lower than 601 is generally considered bad by lenders. 

There are two main types of credit scores used when buying a home: FICO and VantageScore. These two models vary, but both use the same ranking scales: 300-850. When looking to get a loan, lenders usually look at your FICO scores, so let’s break down their ranges. 

If you haven’t had the time to build up your credit or have had significant financial difficulties, your credit score might fall into this range. If you do have a credit score in this range, it could be more difficult to get a loan as lenders may see you as a higher risk. Even though it is difficult to get a loan with credit in this range, it is not necessarily impossible. You do have options. 

While a score in this range isn’t ideal and lenders can see it as risky, it shows a sense of credit worthiness. You will have more loan options in this range, but they typically will come with interest rates above average. 

Credit scores in this range will make you eligible for more home mortgages and give you a better chance of getting competitive interest rates, which can end up saving you more money. According to a FICO report, the average credit score lands in this range. 

You will be seen as a low risk to lenders if you have a credit score in this range. With a score here, most home loans will be available to you with good terms and interest rates, which can lead to more savings**. 

A score in this range will show lenders that you know how to handle your money and could get you the best interest rates and terms.  

Though your options may be more limited, there are several mortgages you can get with a lower credit score. These mortgages can come with higher interest rates or bigger down payments.  

If you do have bad credit, don’t lose hope in your homeownership dreams. Talk to a lender to find out which options are available with your credit score. 

When it comes to getting a home mortgage when you have a lower credit score, your best bet could be a government-backed loan: FHA, VA or USDA.* 

FHA loans are home mortgages insured by the Federal Housing Administration and offer options for credit scores as low as 500. If you have a credit score between 500 and 579, the FHA has loan options that will require a 10% down payment. For an FHA loan with 3.5% down payment options, you will need a credit score of 580 or above. 

If you are a military service member or surviving spouse, you may be eligible for a VA loan from the U.S. Department of Veterans Affairs. While the VA doesn’t set a minimum credit score, most lenders have their own credit standards. You will also need to meet the VA’s requirements to qualify for this type of loan.

USDA loans require a slightly higher credit score of 640 but offer borrowers zero down payment options. These loans are backed by the U.S. Department of Agriculture to boost rural development, so your potential home will need to be in designated areas to qualify for a USDA loan. Some lenders could be more lenient when it comes to these credit requirements. 

Depending on your credit score, you may still be eligible for a conventional loan with higher interest rates and larger down payment options. 

If you are unsure which home mortgages you could qualify for with a low credit score, talk to a lender to learn what your options are.  

There are many reasons why your credit score might not be as high as you’d like. A professional lender can check your credit score and look through your financial history to help show you what mortgage and interest rates you could qualify for.  

Talk with a trusted lender today and learn more about your mortgage options with bad credit. 

_{*Rate is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the Nevada Department of Veterans Services, the US Department of Agriculture, or any other government agency. No compensation can be received for advising or assisting another person with a matter relating to veterans’ benefits except as authorized under Title 38 of the United States Code.} 

_{**Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact <COMPANY NAME> for current rates. Restrictions apply.} 

_{Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.} 

_{GUARANTEED RATE IS NOT A CREDIT REPAIR COMPANY, CREDIT REPORTING AGENCY, BROKER OR ADVISOR. Rate is not a credit repair company or similarly regulated organization under applicable laws, and does not provide credit repair services. Where available, recommendations, tips and education materials are provided to you at no additional charge, and for educational purposes only. The services are intended to provide you with general information and assist you with identifying your options. The information is provided only to enable you to make your own choices about your personal finance, and is not intended to provide, legal, tax or financial advice. We do not provide any services to repair or improve your credit profile or score, nor do we provide any representation that the information we provide will actually repair or improve your profile. Consult the services of a competent professional when you need any type of assistance. You acknowledge that Rate is not a “consumer reporting agency” as that term is defined in the Fair Credit Reporting Act as amended.}