Many lenders allow you to tap your equity with a credit score in the mid-600s (680 is common). You won't get the best rate with a lower score, however. Some lenders also extend loans to those with scores below 620, but these lenders might require you to have more equity or carry less debt relative to your income.
Credit score requirements for HELOCs
The credit reporting agency Experian says borrowers typically need a credit score of 680 to qualify for a home equity line of credit.
2. Credit score: At least 620. In many cases, lenders will set a minimum 620 credit score to qualify you for a home equity loan — though the limit can be as high as 660 or 680 in some cases. Still, there are some options for a home equity loan with bad credit.
Past Bankruptcy or Foreclosure
Having a bankruptcy or foreclosure on your short- to mid-term credit history will likely make it difficult to qualify for all types of loans, including HELOCs. These marks against your creditworthiness are not permanent, but they also don't vanish overnight.
Getting a home equity loan with bad credit generally requires you to have low monthly debts, a credit score of 620 or higher, and a home value of 20% more than you owe.
Requirements for home equity loans with bad credit
A minimum credit score of 620. At least 15 percent to 20 percent equity in your home. A maximum debt-to-income (DTI) ratio of 43 percent, or up to 50 percent in some cases. On-time mortgage payment history.
How much equity you have in your home and your debt-to-income (DTI) ratio are also important considerations. If you have bad credit, which generally means a score less than 580, you probably won't qualify for a home equity loan.
The first step to take after being denied a HELOC or home equity loan is to understand why the lender rejected your application. Lenders typically assess several factors, including your credit score, income, debt-to-income ratio and the amount of equity in your home.
Lenders would perceive you as a credit risk and possibly decline your loan application if you have a low credit score. In addition to having a good credit score, you should have a debt-to-income (DTI) ratio that meets your lender's requirements.
HELOCs usually aren't difficult to qualify for as long as you meet a few basic lending requirements.
Calculating the monthly cost for a $50,000 loan at an interest rate of 8.75%, which is the average rate for a 10-year fixed home equity loan as of September 25, 2023, the monthly payment would be $626.63. And because the rate is fixed, this monthly payment would stay the same throughout the life of the loan.
But, what exactly is the lowest score you can have and still qualify for a home equity loan or line of credit? The minimum credit score for a home equity loan or HELOC from even the most flexible lenders is set at 640, with very few exceptions to be made for lower scores.
You can borrow anywhere from a few thousand dollars to $100,000+ with a 630 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.
Read our editorial guidelines here . Yes, you can still obtain a home equity loan with bad credit — but you will need more income, more home equity and less total debt than someone with good credit.
While having an unused HELOC can be advantageous in many ways, it's essential to be aware of the potential costs. Some HELOCs come with annual fees or maintenance fees, which you might still have to pay even if you don't use the credit line. The fees you could incur, even with an unused HELOC, include: Inactivity fees.
Home equity line of credit requirements can vary by lender, but you typically need more than 15% to 20% equity in your home, a debt-to-income ratio below 50% and a credit score above 680 to qualify.
In October of 2023, Bankrate data showed rates were averaging 8.75 percent on home equity loans and 9 percent for HELOCs. There is one bright spot, though: If you use a HELOC or home equity loan for housing-related repairs or remodels, the interest can be tax-deductible. That can reduce the real cost of your financing.
A home equity loan and a HELOC are two ways you can tap into the equity of your home. To qualify for either loan with reasonable terms, you should have at least 15% to 20% of equity in your home, a LTV ratio of 80% or lower, a credit score of at least 620 (the higher, the better) and a DTI ratio no higher than 43%.
However, depending on where you live, you still may need your partner's consent. One spouse makes all the income: If you earn all your household's income, a lender may allow you to apply for a home equity loan or HELOC without your spouse depending on where you live.
The denial rates for HELOCs are 46%, compared to 12% for a conventional mortgage. Lenders generally require a credit score of at least 680, although many prefer a score above 720. While some lenders may accept a score lower than 680, the borrower's financial profile must be exceptional in other areas.
While a HELOC works like a credit card — giving you a maximum amount you can borrow with a variable interest rate — a home equity loan works more like your mortgage. You get a lump sum of money, and you repay it on a set schedule with a fixed interest rate.
How is a $50,000 home equity loan different from a $50,000 home equity line of credit? The person who takes the loan receives the full $50,000 at once; the person with the line of credit can borrow against the credit line for any amount up to $50,000 as money is needed.
Instead of traditional income verification methods, the lender can use bank statements or asset verification to ensure borrowers can repay their loans. With no document home equity loans, you can borrow against the equity built up in your home without providing a significant amount of income documentation.
Borrowers with low credit scores can also use a co-signer to help secure a loan. If a family member or friend has a good credit history and financial stability, it's worth asking them to be your co-signer. If they agree, they'll take responsibility for the loan if you, the primary borrower, fail to make payments.
Check your credit report
A minimum credit score of 670 is necessary in order to obtain a HELOC at a reasonable interest rate. As mentioned above, the minimum credit score requirement for a HELOC varies by lender, but your credit score will still impact the rate at which you're able to borrow.