In low income countries like Ethiopia, smallholder farmers are facing severe shortage of financial sources to purchase productive agricultural inputs and to participate on non/off-farm economic activities. Small-scale farmers require sufficient financial sources to get working capital, to diversify income sources and income acquisition. This study was conducted to examine the determinants and impacts of micro-credit use on the income of small scale farmers.385 household heads were selected through three stage probability sampling. The collected data were analyzed through descriptive statistics, logistic regression models and propensity score matching methods. The descriptive statistics shows that the socio-economic variables were statistically significant for Chi2 test (for dichotomous variables) and mean t-test (for continuous variables). The logistic regression model estimates shows that Sex, age, educational status, family size, dependency, availability of oxen for the household, access of irrigation service, frequency of extension service, membership of social organizations, total asset, remittance income, experience of shocks, purpose of microcredit use, perception for group lending, organizational procedures and distance from the town were important factors influencing smallholder farmers access to micro credit in the study area. The rest factors, those are marital status, farm size and fertility status of the soil were less powerful in explaining smallholder farmers’ access to microcredit loans indicating that the two groups were homogeneous with regard to these variables. Finally, the results of the propensity score by kernel matching with a band width of 0.25 reflects that there were an average treatment effect of 10.934 or ETB 10,934 on the user households annual income and the researcher recommends that microcredit use has statistically significant and positive impact on household income acquisition which calls for low income earners and marginalized groups to participate and earn more income so that they can improve their living standards through participation in income generating activities.