Credit Scores and Ag Loans


Ag lenders consider credit scores when reviewing a loan application because credit history is typically an important indicator of a borrower’s creditworthiness and likelihood to repay the loan as agreed. Credit ratings are a numerical representation of a borrower’s credit history, including length of credit history, credit utilization and types of credit used. These factors help lenders assess an applicant’s risk level.

Lenders face credit risks due to the volatility and unpredictability of the market; and they need to be confident borrowers can repay their loans, even in the event of unexpected challenges such as droughts, market fluctuations, or other industry-specific risks. As such, credit scores are one of the tools lenders use to evaluate applicant creditworthiness and ability to repay the loan while mitigating their own financial risk.

How Is My Credit Score Calculated?

Credit scores are calculated using various factors and algorithms by credit bureaus. While the exact calculations can vary slightly between different credit scoring models, the following are the primary components that influence how credit ratings are calculated:

  • Payment History: This is the most significant factor in calculating credit scores. It considers whether you have made payments on time for credit cards, loans, mortgages, and other accounts. Late payments, defaults, bankruptcies, and collection accounts negatively impact this component.
  • Credit Utilization: This factor assesses the ratio of your current credit card and loan balances to your total credit limit.
  • Length of Credit History: The length of time you’ve had credit accounts, including the age of your oldest account and the age of all accounts, affects your credit score.
  • Types of Credit in Use: The mix of different types of credit you have, such as credit cards, mortgages, auto loans, and retail accounts, impacts your credit rating.
  • New Credit: Opening new credit accounts or applying for multiple credit inquiries in a short period can temporarily lower your credit score.

These components are used to calculate your credit score using specific scoring models, such as FICO (Fair Isaac Corporation) scores or VantageScore. Each credit bureau may use slightly different versions of these models. Credit ratings can change over time as financial behaviors and circumstances evolve.

What Does My Credit Score Mean?

Credit scores are a reflection of an individual’s financial responsibility and track record of managing available credit. A higher score indicates an applicant has a solid credit history, has demonstrated a consistent ability to make payments on time, and is less likely to default on a loan. This, in turn, may increase the applicant’s chances of being approved for a loan and receiving more favorable loan terms, such as lower interest rates or longer repayment periods.

On the other hand, a lower credit score might indicate the borrower has history of late or missed payments, high credit utilization or other factors which may indicate a higher risk of default. This can make it more difficult for a borrower to get approved for a loan, and they may be offered a higher interest rate or shorter repayment period.

Can I Qualify for an Ag Loan with a Lower Credit Score?

Credit scores play a pivotal role in determining loan eligibility and approval. Lenders set minimum requirements as a preliminary baseline criterion for borrowing. If an applicant has a lower credit score, it is important to communicate certain information to their lender to provide context to potentially improve chances of loan approval. If there were specific circumstances or events that led to the lower score, such as a natural disaster, medical emergency or unexpected financial setback, it is crucial to communicate these details to help the lender understand the context behind the score.

The information contained in a credit score helps potential lenders to assess the risk of lending to an applicant.  Lenders also consider the reasons why a credit rating has been recorded: overspending and non-payment issues are much different than recovery from a natural disaster or an unexpected event. Be sure to communicate with your ag lender clearly and truthfully regarding all issues effecting your credit score.

Conterra Ag Capital offers agricultural loan options across the credit spectrum. As a private lender, Conterra has more flexibility than traditional lenders and is able to tailor ag loan solutions according to the needs of each operation. Conterra’s alternative lending programs are designed for times when conventional lending just doesn’t fit, and have a minimum credit score requirement of 660, which is below the national average credit score. Contact your Conterra relationship manager for additional information on a variety of ag financing options.

Disclaimer: Please note that the information provided in this article is for educational and informational purposes only, and should not be construed as financial or investment advice. While we have made every effort to ensure the accuracy and reliability of the information presented, Conterra Ag Capital and its affiliates make no representation or warranty as to the completeness, correctness, timeliness, suitability, or validity of any information contained in this article. You should always consult a qualified financial advisor, tax professional, or other qualified professional for advice on your specific financial situation.