This paper uses a novel dataset collected by the first author from peri-urban areas of Ho Chi Minh City, Vietnam in 2008 to examine how the poor use their loans, and factors affecting their credit participation and credit constraints. The paper finds the presence of many commercial banks in the areas does not help the poor, but the poor rely heavily on informal credit. Loans in the peri-urban areas are mainly used for non-productive purposes, which stresses the importance of consumption smoothing motives. Further, households in more rural wards have a higher probability of borrowing than more urban households, thanks to better community relationships and higher interpersonal trust. Competition by borrowing neighbours adversely affects the opportunity for borrowing in urban wards where the poor households’ borrowings rely much more on subsidized credit funds. A closer look at specified microcredit sources reveals that household behaviours differ in each market segment. Furthermore, the poor are highly credit-constrained. Wealthier households, in terms of asset holdings and phone possession, among the poor group appear less credit-constrained. However, except in the most rural part of the study area, the likelihood of credit constraints increases with distance to the nearest banks, which suggests that supply-side intervention could help in overcoming credit constraints. Overall, the poor in urban wards are more credit-constrained because of exclusion by commercial banks and weak interpersonal trust.