c. How to Analyze Credit (continued)

Adverse Data

In circumstances not involving bankruptcy, satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date of the last derogatory credit item.

If the applicant and/or spouse are determined satisfactory credit risks in spite of derogatory credit information, include an explanation of the basis for the determination.

For unpaid debts or debts that have not been paid timely pay-off of these debts after the acceptability of applicant’s credit is questioned does not alter the unsatisfactory record of payment.

Lenders may consider a veteran’s claim of bona fide or legal defenses regarding unpaid debts except when the debt has been reduced to judgment.

Collection accounts do not necessarily have to be paid off as a condition for loan approval.  Account balances reduced to judgment by a court must either be paid in full or subject to a repayment plan with a history of timely payments.

d. Consumer Credit Counseling Plan

If a veteran, or veteran and spouse, have prior adverse credit and are participating in a Consumer Credit Counseling plan, they may be determined to be a satisfactory credit risk if they demonstrate 12 months’ satisfactory payments and the counseling agency approves the new credit. 

If a veteran, or veteran and spouse, have good prior credit and are participating in a Consumer Credit Counseling plan, such participation is to be considered a neutral factor, or even a positive factor, in determining creditworthiness.  Do not treat this as a negative credit item if the veteran entered the Consumer Credit Counseling plan before reaching the point of having bad credit.