The study analyzed the constraints faced by the farmers to rural credit by utilizing two household level data sets. The first survey Pakistan Rural Household Survey (PRHS) 2001 was utilized to study the purpose, source structure and utilization of rural credit and; the second which covered nearly 160 households from Sargodha District 2007 was used to calculate the demand and interest rate function by applying Heckman two stage procedures. The focus of this study was to find out the affect of credit constraints of institutional credit on consumption and production pattern of the rural farm households. After measuring the probability of being constrained used to study affect on consumption pattern of farmers who were credit constraint. The frontier production function was used to study the affect of credit constrained and un-constrained farmers. The analysis revealed that agricultural production loan was found as 45.8 percent. ZTBL was providing most of the loan to the farmers for their agricultural needs. The interest was ranging between 10 to 20 percent in all agro-climatic regions. The logit model was applied to determine the nominal interest rate and borrowing function of the farmers. The results showed that the transitory income, predicted interest rate, and farm size were significant. Credit constraints were determined by using Heckman’s two stage procedure. The results showed that the coefficient of education of male household was significant showing that education function as a facilitator to enter into credit market. The farmers faced many constraints namely: lower literacy rate, small and fragmented holdings, uneven access to agricultural extension and information and in ability to obtain adequate irrigation water, less access to agriculture credit institutions, and inequitable distribution of land and water. The results of the frontier production revealed that credit users and non credit users were allocatively inefficient, especially irrigation water. The mean technical efficiency of credit users was 90 and that of non-credit users was 79 percent, respectively. The high technical efficiency of credit users was attributed to better market access to the farmers to new technology through the availability of agricultural credit. The low level of technical efficiency of non-credit users as compared to credit users implied that potential for improvement exists. The high technical efficiency of credit users was safely attributed to credit availability through which farmers have an access to new technology. With respect to policy implication, the study suggested that development and dissemination of low cost and site-specific production technologies for the farmers. In this regard formation of Credit Assessment Bureaus for the risk assessment of the borrowers as it done in urban areas. Better dissemination of information and technology for improved decision making regarding use of credit.