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FHA Loan Questions: Credit History–What Counts?


We get a number of reader questions about FHA home loans, and many of those include questions about credit history. Does the presence of a few late payments on a borrower’s credit history jeopardize an FHA loan application?

In general, it’s best to come to the FHA loan process with at least 12 months of on-time payments on your record, but we should examine the FHA loan rulebook (HUD 4155.1) to see what instructions are given to participating FHA lenders about credit history.

These instructions can be found in Chapter Four, Section C of HUD 4155.1. They include the following, found under the heading “Documenting an Analysis of Delinquent Accounts”:

“The lender must document the analysis of delinquent accounts, including whether late payments were based on

• a disregard for financial obligations
• an inability to manage debt, or
• factors beyond the borrower’s control, such as delayed mail delivery, or disputes with creditors.”

Lenders are also instructed, “Minor derogatory information occurring two or more years in the past does not require an explanation. Major indications of derogatory credit, such as judgments, collections, and other recent credit problems, require sufficient written explanation from the borrower. The explanation must make sense, and be consistent with other credit information in the file.”

This information should be considered carefully–the borrower is not penalized for minor lapses in loan repayment or other financial obligations in general, but it should be pointed out that the FHA gives the lender plenty of discretion as to how such credit information can and should be interpreted. The lender makes the final call–the FHA cannot force the lender to lower a financial institution’s minimum credit standards.

And the lender may have standards which are higher or more stringent than FHA minimums–that’s why it’s very important not only to know what may be expected from your credit report when you apply for the loan, but also to shop around for a lender who seems to be willing to work with you in your specific situation. One lender may have more strict FICO score requirements than another–the standards of one bank do not necessarily mean all lenders have an identical standard.

That also goes for borrowers with non-traditional credit. Consider what Chapter Four says about this area:

“The lack of a credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan application. Some prospective borrowers may not have an established credit history. For these borrowers, including those who do not use traditional credit, the lender must obtain a non-traditional merged credit report (NTMCR) from a credit reporting company, or develop a credit history from

• utility payment records
• rental payments
• automobile insurance payments, and
• other means of direct access from the credit provider”

Speak to a loan officer or contact the FHA directly to learn more.

Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at, a private company and not a government website.

Joe Wallace - Staff Writer

By Joe Wallace

December 19, 2013

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for for (8) years and is currently the Associate Editor for

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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