Credit Score of 545 - What are My Mortgage Options?

Reader Question: "I want to buy a home buy I have a 545 credit score right now. I was told by a friend who knows a lot about this stuff that my score is too low to get a mortgage loan. Is he right. If so, what can I do to improve my score of 545 to the range needed to buy a home?"

I make a point not to answer questions related to mortgage approval, because only a lender can answer those questions for you. With that being said, I can say that you will probably have a hard time getting approved for a mortgage loan with a credit score in the 545 range. But that certainly doesn't mean you are powerless in this department. On the contrary, there is plenty you can do to improve your score to the range needed for a mortgage loan.

You may also want to look into FHA home loans, because you can generally get approved for one of these loans with a lower score (as compared to a non-FHA traditional mortgage loan). But in my personal experience, based on what I've heard from other mortgage shoppers and lenders, a 545 credit score may be too low even for an FHA loan.

Those are two important points I want to get across. FHA loans are easier to qualify for, and there is plenty you can do to improve your credit score. Here's a third point to keep in mind. Every lender has its own criteria and underwriting guidelines. What this means is that one mortgage company might approve a person that another lender rejects. In other words, one size does not fit all.

Lastly, you need to consider the interest rate on the loan. The lender will give you a rate partly based on your credit score and other qualifying factors. So a lower score generally means you will pay a higher interest rate, which increases the size of your monthly payment as well. You already need to improve your 545 credit score just to get approved for a loan. But you also want to improve it as much as possible because you'll save money by getting a lower rate. So you have two motivating factors at work here.

How to Improve a Score of 545

This leads to the next logical question, which is: How do I raise my score as quickly as possible? There is plenty of advice on this blog to help you with that, and I recommend starting with the articles listed below.

• How to Raise Your Score Fast in 2009
• Score Needed to Buy a Home in 2009

I hope this article helps you improve your 545 to a 650 or better. If you can get it above 700, you'll be even better positioned to get a good rate. Remember, getting approved for a mortgage is only one of your goals. You also want to get a decent interest rate to make the loan more affordable for you. So work on that 545 credit score ... you can do it!