What underwriters check and what you can do about it
VA Collection Account Guidelines: How Collections and Charge-Offs Affect Your VA Loan
VA Pamphlet 26-7, Chapter 4
Collections and charge-offs do not automatically disqualify a VA loan. Medical collections can be disregarded entirely. Non-medical collections do not have to be paid off if the overall credit picture is acceptable, but the underwriter must count them as debt and explain them in the loan file. Judgments must be paid or on a repayment plan with a track record.
Medical Collections
- Disregarded entirely. Lenders may disregard all identifiable medical collections, including charge-off accounts, that have not been reduced to a judgment or lien.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- No payoff required. Medical collection accounts do not have to be paid off as a condition for loan approval and should not impact the overall acceptability of credit.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- No explanation needed. Lenders do not need to obtain explanations for medical collections or charge-offs and do not need to otherwise address such accounts.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
Non-Medical Collections
- Not necessarily a payoff requirement. Isolated non-medical collection accounts do not necessarily have to be paid off as a condition for loan approval.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- Counted as debt. Accounts without established payment arrangements are included at 5% of the outstanding balance divided by 12 months.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- Must be explained. The underwriter must address the existence of the accounts on VA Form 26-6393 and justify why positive factors outweigh the negative credit history.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
Charge-Offs
- Medical charge-offs: disregarded. The same rule as medical collections applies. Lenders may disregard medical charge-offs that have not been reduced to a judgment or lien.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- Non-medical charge-offs: must be addressed. The underwriter must address the circumstances regarding the negative credit history when reviewing the overall credit.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- Paying off does not erase the record. Pay-off of debts after the acceptability of credit is questioned does not alter the unsatisfactory record of payment.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
Judgments
- Must be resolved. Account balances reduced to judgment must either be paid in full or subject to a repayment plan with a history of timely payments.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- Short history possible. When a judgment has only been in place for a few months, a shorter repayment history may be justified if the borrower immediately addressed it.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- Federal judgments: stricter. A judgment lien against the property for a debt owed to the Government must be paid or otherwise satisfied before VA can guarantee the loan.[VA Pamphlet 26-7, Ch. 4, Topic 6d]
Top questions before you dig in
Can you get a VA loan with collections on your credit report?
Do you have to pay off collections before closing on a VA loan?
How do collections count against your debt-to-income ratio?
The Bottom Line Up Front
Collections and charge-offs on your credit report do not automatically prevent a VA loan. The outcome depends on whether the debt is medical or non-medical, whether it has been reduced to a judgment, and what the rest of your credit history looks like.
Medical collections and medical charge-offs can be disregarded entirely, provided they have not been reduced to a judgment or lien.[VA Pamphlet 26-7, Ch. 4, Topic 7b] Non-medical collections do not necessarily require payoff, but the underwriter must count them as debt using a 5%-of-balance formula and explain them on the loan analysis.[VA Pamphlet 26-7, Ch. 4, Topic 7b] Judgments must be paid or on a repayment plan with timely payments before the loan can close.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
How the VA Treats Medical Collections
"Lenders may disregard all identifiable medical collections, including charge-off accounts, that have not been reduced to a judgment or lien."[VA Pamphlet 26-7, Ch. 4, Topic 7b]
This is the clearest rule in VA's collection guidance. If the collection is identifiable as medical:
- It does not have to be paid off as a condition for loan approval[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- It should not impact the overall acceptability of the borrower's credit[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- The lender does not need to obtain an explanation for it[VA Pamphlet 26-7, Ch. 4, Topic 7b]
- It does not count toward debt ratios
The exception: if a medical debt has been reduced to a judgment or lien, it is no longer treated as a medical collection. It falls under the judgment rules below.
For a deeper look at how medical debt interacts with VA underwriting, see Medical Debt and VA Loans.
How the VA Treats Non-Medical Collections
"Isolated non-medical collection accounts do not necessarily have to be paid off as a condition for loan approval."[VA Pamphlet 26-7, Ch. 4, Topic 7b]
Non-medical collections are not disregarded. The underwriter must evaluate them, but they do not automatically block the loan.
The 5% Payment Rule
When a non-medical collection account has no established payment arrangement, the lender must include it as a monthly debt obligation. The formula: 5% of the outstanding balance divided by 12 months.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
For example, a $3,000 non-medical collection with no payment arrangement: 5% of $3,000 is $150, divided by 12 months gives $12.50 per month added to the borrower's total obligations.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
This calculated payment is added to the borrower's total monthly obligations, which affects both the debt-to-income ratio and the residual income calculation.
The Explanation Requirement
"While VA does not require such accounts be paid-off prior to closing if the borrower's overall credit is acceptable, an underwriter must address the existence of the account(s) with an explanation on VA Form 26-6393, Loan Analysis, and justify why positive factors outweigh the negative credit history such accounts represent."[VA Pamphlet 26-7, Ch. 4, Topic 7b]
The underwriter writes a narrative explaining the collection in the context of the full credit file. One or two unpaid collections alongside numerous satisfactory accounts may not require payoff. A pattern of unpaid non-medical collections is a different picture.
Charge-Offs
A charge-off is an account where the creditor is no longer pursuing collection. VA treats medical and non-medical charge-offs differently:
| Type | VA Treatment | Payoff Required? |
|---|---|---|
| Medical charge-off | Disregarded (same as medical collections) | No, unless reduced to judgment or lien[VA Pamphlet 26-7, Ch. 4, Topic 7b] |
| Non-medical charge-off | Underwriter must address the circumstances | Not required if overall credit is acceptable[VA Pamphlet 26-7, Ch. 4, Topic 7b] |
Judgments
"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."[VA Pamphlet 26-7, Ch. 4, Topic 7b]
A judgment is the most serious form a collection can take. Unlike unpaid collections, a judgment cannot be left unaddressed. The borrower must either pay it off completely or demonstrate a repayment plan with a track record of timely payments.
When a judgment has only been in place for a few months, the underwriter may accept a shorter repayment history if the borrower immediately addressed the judgment after it was filed.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
Federal debt judgments are stricter. A judgment lien against the property for a debt owed to the Government must be paid or otherwise satisfied before the loan can proceed.[VA Pamphlet 26-7, Ch. 4, Topic 6d] For the full federal debt and CAIVRS rules, see CAIVRS: How Federal Debt Defaults Affect Your VA Loan.
Disputed Accounts
"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."[VA Pamphlet 26-7, Ch. 4, Topic 7b]
If you are disputing a collection and it has not become a judgment, the lender can take your dispute into account. Once a debt becomes a judgment, the dispute defense no longer applies under VA guidelines.
Paying Off Collections: What It Does and Does Not Do
"For unpaid or debts that have not been paid timely, pay-off of these debts after the acceptability of a borrower's credit is questioned does not alter the unsatisfactory record of payment."[VA Pamphlet 26-7, Ch. 4, Topic 7b]
Paying off a collection removes the balance but does not erase the history. The underwriter still sees the original delinquency. Re-establishing satisfactory credit requires a period of making timely payments on subsequent obligations for at least 12 months.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
What the Underwriter Looks At
VA's underwriting standard is the overall credit picture, not a single score or a single account. "The borrower's past repayment practices on obligations is the best indicator of his or her willingness to repay future obligations. Emphasis should be on the borrower's overall payment patterns rather than isolated occurrences of unsatisfactory repayment."[VA Pamphlet 26-7, Ch. 4, Topic 7b]
A poor credit history alone is a basis for disapproving a loan.[VA Pamphlet 26-7, Ch. 4, Topic 11c] Compensating factors like high residual income or significant assets may help with borderline debt ratios, but they cannot be used to compensate for unsatisfactory credit.[VA Pamphlet 26-7, Ch. 4, Topic 11d]
Divorce and Collection Debts
"Debts assigned to an ex-spouse by a divorce decree will not generally be charged against a borrower. This includes debts that are now delinquent."[VA Pamphlet 26-7, Ch. 4, Topic 2c]
If a divorce decree assigned a collection or charge-off to the other party, the underwriter should not count it against you. The decree must clearly assign the debt.
Frequently Asked Questions
Does paying off a collection improve your VA loan chances?
Paying off the balance removes the debt from your monthly obligations, which can help your debt-to-income ratio. However, the payment history remains on the credit report. VA considers payoff after credit is questioned as not altering the unsatisfactory record. Re-establishing satisfactory credit requires at least 12 months of timely payments on subsequent obligations.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
Can you dispute a collection and still get a VA loan?
Yes. Lenders may consider a bona fide dispute regarding unpaid debts, as long as the debt has not been reduced to a judgment. If the debt has become a judgment, the dispute defense does not apply under VA guidelines.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
How are medical collections treated differently?
Medical collections and medical charge-offs can be disregarded entirely. They do not have to be paid off, do not count toward debt ratios, and the lender does not need an explanation for them. The only exception is if the medical debt has been reduced to a judgment or lien.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
What happens if a collection has become a judgment?
Judgments must either be paid in full or subject to a repayment plan with a history of timely payments. A judgment cannot be left unaddressed. Federal debt judgments are stricter: a judgment lien for a government debt must be paid or satisfied before the loan can proceed.[VA Pamphlet 26-7, Ch. 4, Topics 7b, 6d]
How does the 5% payment calculation work?
For non-medical collection accounts without an established payment arrangement, the lender includes a calculated monthly payment: 5% of the outstanding balance divided by 12 months. This amount is added to total monthly obligations for the debt-to-income and residual income calculations.[VA Pamphlet 26-7, Ch. 4, Topic 7b]
Can compensating factors override a bad credit history?
No. Compensating factors may help with borderline debt ratios but cannot be used to compensate for unsatisfactory credit. A poor credit history alone is a basis for disapproving a loan.[VA Pamphlet 26-7, Ch. 4, Topics 11c, 11d]
What about collections assigned to an ex-spouse?
Debts assigned to an ex-spouse by a divorce decree will not generally be charged against the borrower, even if those debts are now delinquent. The divorce decree must clearly assign the debt.[VA Pamphlet 26-7, Ch. 4, Topic 2c]
Where can you get help with credit issues before applying?
For free credit counseling resources available to Veterans, see VA Loan Credit Counseling for Veterans. For building credit with alternative tradelines, see Non-Traditional Credit and Alternative Tradelines for VA Loans.
Check Your VA Loan Eligibility
How We Researched This Article
This article is sourced from VA Pamphlet 26-7, Chapter 4 (Credit Underwriting), accessed through the KnowVA knowledge base on ebenefits.va.gov. Every rule on collections, charge-offs, judgments, disputed accounts, and payment history traces to a verbatim line in the handbook. Where the handbook leaves a decision to the underwriter's judgment, the article states that rather than supplying a rule.