Can I buy a house with 542 credit score?
It is possible to buy a house with a credit score of 550 or less, but it may be more challenging to qualify for a mortgage, and you may face higher interest rates. Government-backed loan programs such as FHA, VA, and USDA generally have lower credit score requirements than conventional mortgages.
A 542 credit score can be a sign of past credit difficulties or a lack of credit history. Whether you're looking for a personal loan, a mortgage or a credit card, credit scores in this range can make it challenging to get approved for unsecured credit, which doesn't require collateral or a security deposit.
| Type of Credit | Do You Qualify? |
|---|---|
| Secured Credit Card | YES |
| Home Loan | YES (FHA Loan) |
| Unsecured Credit Card | MAYBE |
| Auto Loan | NO |
| Card name | Annual fee | Security deposit |
|---|---|---|
| Capital One Platinum Secured Credit Card | $0 | $49 to $200 |
| Petal® 1 “No Annual Fee” Visa® Credit card | $0 | None |
| Discover it Secured® Secured Credit card | $0 | $200 |
| Petal® 2 “Cash Back, No Fees” Visa® Credit card | $0 | None |
For most people, increasing a credit score by 100 points in a month isn't going to happen. But if you pay your bills on time, eliminate your consumer debt, don't run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.
Credit score and mortgages
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
It is possible to qualify for an FHA loan with a credit score as low as 500, although you won't get the standard 3.5% down payment these loans are known for. Borrowers without a FICO Score of at least 580 need to put 10% down.
Your score falls within the range of scores, from 300 to 579, considered Very Poor. A 542 FICO® Score is significantly below the average credit score. Many lenders choose not to do business with borrowers whose scores fall in the Very Poor range, on grounds they have unfavorable credit.
The length of time it will take to improve your credit scores depends on your unique financial situation. At the earliest, you may see a change between 30 and 45 days after you have taken steps to positively impact your credit reports.
| Lender | Loan Amounts | APRs |
|---|---|---|
| Upstart | $1,000 - $50,000 | 6.4% - 35.99% |
| Oportun | $300 - $18,500 | 10.07% - 35.95% |
| OneMain Financial | $1,500 - $20,000 | 18% - 35.99% |
| RISE | $500 - $5,000 | 60% - 299% |
Can I get an FHA loan with a 540 credit score?
Minimum credit score: 500-580
If you want to put just 3.5 percent down, the minimum credit score for an FHA loan is 580. You can qualify with a score as low as 500, but you'll need to make at least a 10 percent down payment.
Lenders specializing in bad credit score loans may be willing to approve loans up to $50,000. These loans will typically have much higher interest rates and origination fees.
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
| Lender | Scholaroo rating |
|---|---|
| Petal 1 Rise Credit Card Best for no security deposit Visit website | 4.5/5 |
| Surge® Platinum Mastercard® Best for choosing your own card design Visit website | 4.2/5 |
| Reflex® Platinum Mastercard® Best for an instant decision Visit website | 4.2/5 |
It is 176 points away from being a “good” credit score, which many people use as a benchmark, and 116 points from being “fair.” A 524 credit score won't knock any lenders' socks off, but it shouldn't completely prevent you from being approved for a credit card or loan, either.
If you want help, you can hire a credit repair company to assist you. They generally charge anywhere from $19 to $149 a month for their services. But beware of scam credit repair offers, which may leave you in worse financial shape than before. Consumer Financial Protection Bureau.
The time it takes to raise your credit score from 500 to 700 can vary widely depending on your individual financial situation. On average, it may take anywhere from 12 to 24 months of responsible credit management, including timely payments and reducing debt, to see a significant improvement in your credit score.
It's recommended you have a credit score of 620 or higher when you apply for a conventional loan. If your score is below 620, lenders either won't be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly mortgage payments.
To qualify for a conventional loan, you'll need a credit score of at least 620, though some lenders may choose to approve conventional mortgage applications only for borrowers with credit scores of 680 and up.
You'll usually need a credit score of at least 640 for the zero-down USDA loan program. VA loans with no money down usually require a minimum credit score of 580 to 620. Low-down-payment mortgages, including conforming loans and FHA loans, also require FICO scores of 580 to 620.
What's the minimum credit score for FHA loan?
The Takeaway
To qualify for an FHA-insured loan, you need a minimum credit score of 580 for a loan with a 3.5% down payment, and a minimum score of 500 with 10% down. However, many FHA lenders require credit scores of at least 620.
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms.
Federal Housing Administration (FHA) loans need at least a 580 FICO Score with at least a 3.5% down payment (which amounts to $10,500 on a $300,000 home). Conventional loans require a minimum FICO® Score of 620 along with a 3% down payment (which amounts to $9,000 on a $300,000 home).
| Average FICO 8 Score by Generation | ||
|---|---|---|
| Generation | 2022 | 2023 |
| Generation Z (ages 18-26) | 679 - Good | 680 - Good |
| Millennials (27-42) | 687 - Good | 690 - Good |
| Generation X (43-58) | 707 - Good | 709 - Good |
