Amy asks:

Can I get approved for a USDA home loan with having settled and paid off collections on my report?  I was unemployed and made arrangements to pay my bills, but the companies didn’t care and posted it anyways.

My credit is 597, 647, 638.

Tim: Yes, you can still get approved for a USDA loan after paying off collections or making arrangements to pay them.
However, paying off collections can actually make your credit scores go down since that makes the collection accounts look new. Your middle credit score should be at or above 640 for a USDA loan. If you wait a month or two, your score will probably rise above 640 because those collection accounts will appear older.

Amy: I have been told so many things regarding getting an USDA loan.  I am starting to believe that we just need to see if a lender likes us.  The USDA website says that there is no minimum credit score limit.  Our credit scores are difference every other day.  In one day without any changes, the Transunion score dropped 30 points, but the other score with Experian went up around 40 points.  I have no clue how to fix this credit matter.  We have paid the three credits off, but they won’t clear.  It’s been a month or so, and the companies still won’t clear even after agreeing to clear.

Tim: Collections do not get cleared off your credit report, they just get older and have less effect on your score over time. Credit scores can change quite a bit from day to day depending on the most recent information the credit bureaus receive from creditors. In your case, Transunion may have received a piece of negative information on the same day Experian got positive information. After some time, all three credit bureaus should be reporting scores within 20-30 points of each other.

As of 12/1/14, USDA implemented a 640 minimum score. That change didn’t have much effect because most lenders would require a 640 score even if USDA allowed a lower one. Lenders can require higher score than USDA requires so shop around for a lender who will approve you with a 640 score.