How You Can Overcome Credit Issues with a FHA Loan

You have saved enough money for a down payment on a home, and you have enjoyed a great job for two years that pays a nice salary. You're only barrier for acquiring a FHA backed loan is a spotty credit history. Fear not! You can still qualify for a FHA loan with no credit history or negative credit marks if you conduct credit patchwork and provide alternative forms of proving good payment history.

No Credit History

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Your credit history shows a record of your payment activity with credit granting institutions. Small bank loans, merchant stores like JCPenny, or bank credit cards issued through Visa or Mastercard are examples of credit report items. Typically, the FHA requires at least 2 lines of credit to analyze your eligibility. If your credit report is undeveloped, there are alternative credit verification methods that FHA will consider on your application,

  • Previous rental or mortgage payment history
  • Telephone or cell phone payments
  • Auto insurance payments
  • Utility payments
  • Repayment of a small loan
  • Repayment of store account

You will need to show payment documentation by copies of billing statements and/or by letter from the store or agency.

Late Payment History

An underwriter will review your credit history for late and delinquent payments. Your report will reveal the last seven years of credit history that has been reported to credit bureaus. Even if you have had slow payments or isolated delinquencies in the past, the underwriter will analyze the overall pattern of your credit worthiness. Keeping up with your payments on time and staying within credit limits will ensure that your credit history pattern does not raise red flags.


If you have filed for Chapter 7 or Chapter 13 Bankruptcy in the past, you still may be eligible for a FHA loan. Two years must pass from the discharge date (rather than the filing date) of Chapter 7 Bankruptcy, and you may still qualify if still paying on Chapter 13 Bankruptcy status as long as you show one year of good payment history. In both cases, you will still need to qualify financially, show stable job history, and re-establish good credit.


Though generally not available to individuals and families whose property has been foreclosed in the last three years, you may still qualify for FHA backing if the foreclosure was under extenuating circumstances. You can be granted an exception if you have established good credit and provide a satisfactory explanation to the underwriter about the circumstances.


Judgments are a barrier that will prevent approval of a FHA loan. A judgment is a lien against a home that you may own. You may be eligible for FHA approval, but you must show proof that the judgment is paid in full before closing.

Federal Debts

If you have a federal debt such as a student loan or tax lien that is delinquent, you cannot obtain FHA approval. Delinquencies on these debts must be brought up to date, and you will need to show a satisfactory payment plan in writing.


If you have a debt or medical accounts in collection, you may still be eligible for a FHA loan. Generally, non-medical debts must be paid in full, but can be overlooked if you show sufficient proof of mitigating factors. In either case, you must show good payment history on the debts.

Derogatory credit may deter you from thinking you are eligible for a FHA loan, but it shouldn't prevent you from applying. Even with credit mistakes, a FHA loan can be manually underwritten and several things can be overlooked with sufficient explanation and good payment history. More great information about FHA Loans here on FHA Mortgage