540 credit score: A guide to credit scores
Quick insights
- A 540 credit score is considered poor by some credit scoring models and may indicate that you are a higher risk candidate to lenders, making it more difficult to get approved for credit.
- To help improve a 540 credit score, you may want to check your credit report for errors, reduce debt and make timely payments.
- By implementing these strategies and monitoring your credit report, you may be able to improve your credit score over time and increase your access to better financial opportunities.
A 540 credit score is considered poor by FICO® and subprime by VantageScore® scoring models, indicating a higher risk for lenders.
Understanding a 540 credit score can be helpful for individuals who are looking to improve their financial health, particularly when it comes to securing credit like a mortgage, credit card or auto loan. What else is there to know about a 540 credit score? Let's find out.
Understanding a 540 credit score
According to FICO and VantageScore, a credit score of 540 would be in their lowest scoring range. As of 2024, VantageScore's scoring ranges for VantageScore 3.0 look like:
- Superprime: 781 to 850
- Prime: 661 to 780
- Near prime: 601 to 660
- Subprime: 300 to 600
As of 2024, FICO's credit score ranges for FICO Score 8 are categorized like this:
- Exceptional: 800 to 850
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
How are credit scores calculated?
A credit score of 540 suggests that there may be some negative marks on your credit report, such as late payments.
To understand how your credit score is calculated, it can be helpful to understand the factors that influence it. These include:
- Payment history
- Credit utilization ratio
- Length of credit history
- Credit mix
- New credit inquiries
Payment history accounts for a significant portion of your credit score, so making on-time payments is important. You may also want to consider reviewing your credit report to check for any errors that are affecting your score and identify areas for improvement.
You can get a free copy of your credit report from the three major credit bureaus—Experian™, TransUnion® and Equifax®—from AnnualCreditReport.com. Reviewing your report will also help you understand the factors contributing to your credit score.
Getting a home loan with a 540 credit score
Buying a home with a 540 credit score may be possible, but it may be more challenging than if you had an excellent credit score. Some lenders may require a larger down payment, charge higher interest rates or have stricter loan terms.
Whatever you decide, carefully review and compare different lenders and loan options to find your best fit for your specific circumstances. While important, credit scores are just one of several factors lenders use when approving home loans. In general, some lenders may require a larger down payment, charge higher interest rates or have stricter loan terms for mortgage applicants they may consider in the "good" range.
Strategies for improving a 540 credit score
Improving a 540 credit score requires a combination of financial discipline and smart credit management. You may want to consider the following strategies to get started:
- Checking your credit report for errors and disputing them if necessary
- Reducing debt and credit utilization by keeping credit balances low
- Making consistent on-time payments
- Avoiding new hard credit inquiries and managing accounts responsibly
By following these steps, you can begin working towards improving your credit score over time. For instance, paying off outstanding debts can help reduce your credit utilization ratio, which can positively impact your credit score.
Timeline for credit score improvement
The time it might take to improve a 540 credit score varies based on individual circumstances. Factors such as credit history, debt and payment habits all play a role in determining the timeline. To get started, you may want to focus on making consistent, on-time payments and reducing debt to see improvements in your credit score over time.
It's also important to monitor your credit report regularly to track your progress, check for errors and adjust your strategies as needed. By doing so, you can identify areas for improvement and make adjustments to optimize your credit score.
Using a free credit monitoring tool like Chase Credit Journey® might be one way to help you do this.
In summary
A 540 credit score often presents challenges, particularly when it comes to securing new credit or loans. But by understanding the factors that influence your credit score and implementing strategies to improve it, you can work towards a brighter financial future.
By taking proactive steps, you can help improve your credit score and increase your access to better financial opportunities.
