As long as your middle score stays at 620 or above, you're safe for USDA.
You never want to pay a collection off unless an underwriter requires it and here's why. Like Beverly said, some times when you pay a collection off and it updates on your credit report it can actually cause your scores to go down even more. In most cases an underwriter will require a collection to be paid off at or prior to closing.
By waiting for the underwriter to require it we don't have to worry about how that affects your credit score because we'll use the same credit report that was pulled initially instead of paying it off and pulling a new credit report showing it's paid and then sending your file in for underwriting.
Please feel free to contact me for more information or help. You can also find info on my USDA Mortgage website by clicking the link below.
Senior Mortgage Banker
Peoples Bank & Trust
First of all...is your FICO 638 BEFORE or AFTER the new collection account??? You would be required to pay the collection off in full and have it reported paid in full. Then we wait to see what that actually does to your score. The reporting of a new collection automatically lowers your score. When you pay the collection off, it usually lowers it again. Then the longer you maintain good, on-time payments, the closer you will get to becoming eligible for a USDA loan. USDA now requires all credit scores to be a minimum of 640... Let me take that back...All of the investors will no longer buy loans with scores under 640.
I would be more than happy to work with you on your credit. Sometimes it's a slow process. The general rule of thumb is most government loans require on-time payments within the last 12 months...but I have gotten many loans approved in a much shorter time. My best/earliest guess, without seeing your credit, would be 90 days...
Please call me at 832.419.2767 or 1.877.933.0036 X 300 or ask for Beverly