So … I am wondering if you could review the above credit report and tell me what you think. According to the rules, this report should be okay but I feel nervous submitting it because there are open collections from the U.S. Department of Education.  

(The credit report was redacted for privacy and all that good stuff but it showed two collections, none on federal student loan debt, with a valid score of 720.)


Major Handbook 3550-1 changes still causing major headaches

Dear Major Headaches,

It seems to me grantees and Rural Development alike are still struggling to wrap their arms around some of the recent changes to Handbook 3550-1. And some of the changes are really helping to qualify more participants, but I think we’re overthinking it!

Your email is one of many I continue to receive on this subject so I’ve been trying to come up with a way to illustrate the new procedures. I think it’s easiest to think of credit as a tree. First you attempt to validate the credit report. Every credit report must be validated.

A valid credit report is one with at least two trade lines that have been open and active for at least 12 months within the last 24 months with no outstanding judgments obtained by the United States in a federal court, and with no significant delinquencies. Significant delinquency is defined as the following:

  • A foreclosure, deed-in-lieu of foreclosure, short sale, or mortgage charge-off that has been completed within the last 36 months.
  • A Chapter 7 bankruptcy discharged less than 36 months prior to the application date.
  • A Chapter 13 bankruptcy where the applicant has not successfully completed the debt restructuring plan or has not demonstrated a willingness to meet obligations when considering the last 12-month payments made under the restructuring plan.
  • Agency debts that were debt settled within the past 36 months, or are being considered for debt settlement.

An applicant with significant delinquency on their credit report, even with a reliable credit score of 640 or higher, is subject to further credit analysis.

Then you follow one of two paths depending on the outcome; was it valid or not.

Two paths to take, one for valid another if it's not valid.

What’s interesting to me and a real significant change is that Exhibit 4-4, Indicators of Unacceptable Credit, never crosses over or applied at all to the valid side . The handbook even stresses, “These applicants are automatically classified as having acceptable credit histories regardless of what is listed on the TMCR. To avoid potential disparate treatment, additional credit analysis is not appropriate. Credit scores are used to reduce the time necessary to conduct a credit analyses, but under no circumstance can they be used to make adverse decisions.”

So, given all of this, your applicant with a valid score of 720, no significant delinquencies and two collections appears credit worthy!

Sincerely, Sher

Dear Sher is a regular Self Help Builder News feature. If you have a question you would like answered or researched by Sher, please send it to and your question may be featured in a future publication