Cook noodles according to package directions. Drain and set aside.
In large pot, heat milk and butter over medium-low heat. Turn off heat, then add Velveeta and stir until smooth and melted. Stir in grated cheddar, salt, and pepper. Stir until combined, then taste and add ingredients as needed.
Add cooked pasta and stir until coated. It will be soupy and saucy, but it will thicken. Stir in frozen peas and bacon, allow peas to thaw, and serve.