Yes, you can get a HELOC with bad credit, but lenders will charge you more and require more equity

A HELOC (home equity line of credit) is secured by your home's value, which means lenders care less about your credit score than they do for unsecured loans. If you have bad credit but significant equity in your home, you have options. However, lenders will typically require a higher credit score for a HELOC than for a mortgage, charge you a higher interest rate, and may limit how much you can borrow.

The exact terms depend on how much equity you have, how bad your credit is, and which lender you approach. Some lenders specialize in HELOCs for borrowers with credit scores below 620; others have a hard floor at 640 or 660. The difference between lenders matters more than your credit score alone.

Key Takeaways

  • Most HELOC lenders require a credit score between 620 and 680, though some will work with scores as low as 580 if you have substantial home equity.
  • Lenders will pull your home's current value and calculate how much equity you have; you typically need at least 15 to 20 percent equity to borrow against it.
  • Interest rates for HELOCs with bad credit are higher than for borrowers with good credit, and the rate may be variable, meaning it can change over time.
  • You will need recent pay stubs, tax returns, and bank statements to prove income and stability, even though your credit score is low.
  • Shopping with multiple lenders takes the same time as explore with one, but the rate difference between lenders can be 1 to 2 percentage points.

What credit score you actually need for a HELOC

There is no single minimum credit score for a HELOC. Different lenders set their own floors. Some will work with a score of 580 or 600; others require 640 or higher. The lower your score, the fewer lenders will consider you, and the ones who do will charge more.

Your credit score is one factor among several. A lender will also look at your payment history on existing accounts, how much debt you carry relative to your income, and how long you have been at your current job. A score of 620 with a stable income and no recent late payments looks better to a lender than a score of 650 with three missed payments in the past year.

If your score is below 620, call lenders directly before you explore. Ask whether they work with your score range. This takes five minutes and saves you from a hard inquiry on your credit report that will lower your score further if the lender declines.

How much home equity you need

Lenders typically require you to have at least 15 to 20 percent equity in your home before they will lend against it. Some require 25 percent. Equity is the difference between what your home is worth and what you still owe on your mortgage.

To find your equity, you need a current home value. You can get a rough estimate from your county assessor's website or a real estate site like Zillow, but lenders will order an appraisal or automated valuation model (AVM) to confirm the value themselves. If your home is worth $300,000 and you owe $240,000 on your mortgage, you have $60,000 in equity, or 20 percent. A lender requiring 20 percent equity would let you borrow up to that $60,000 (minus their fees).

The more equity you have, the more willing lenders are to overlook a lower credit score. If you have 40 or 50 percent equity, some lenders will work with you even if your score is below 600.

Interest rates and fees when your credit is bad

A HELOC with bad credit will cost more than one with good credit. The interest rate is usually variable, meaning it starts at one rate and can move up or down based on the prime rate. A borrower with a 750 credit score might get a HELOC at prime plus 1 percent; a borrower with a 600 score might pay prime plus 3 or 4 percent.

The prime rate changes throughout the year, so your monthly payment will change too. When you receive an offer, ask the lender for the current rate, the margin (the amount they add to prime), and the maximum rate the HELOC can reach. This tells you what your payment could be in a worst-case scenario.

Lenders also charge origination fees, appraisal fees, and sometimes annual fees. Origination fees range from 1 to 5 percent of the credit line. If you are borrowing $50,000, a 3 percent fee is $1,500. Ask each lender for a full list of fees in writing before you commit.

Documents you will need to provide

Even though your credit is bad, lenders still need proof that you can repay the HELOC. Expect to provide the following:

  • Two recent pay stubs (usually from the past 30 days)
  • Two years of tax returns
  • Two months of recent bank statements
  • Proof of homeowners insurance
  • A recent mortgage statement showing the balance you owe
  • Photo identification

If you are self-employed or have income from multiple sources, bring profit-and-loss statements or 1099 forms. If you have been at your job for less than two years, bring documentation of your previous employment. Lenders want to see that your income is stable, not that it is high.

The underwriter will also order a title search to confirm you own the home and that no liens other than your mortgage are attached to it. This is done by the lender and costs you nothing upfront, though the fee is usually rolled into the closing costs.

Why shopping with multiple lenders matters

The difference between the best and worst offer you receive can be substantial. One lender might offer you a HELOC at prime plus 3.5 percent with a 2 percent origination fee; another might offer prime plus 2.5 percent with a 3 percent fee. Over the life of the loan, that 1 percent difference in rate can save or cost you thousands of dollars.

explore with at least three lenders. All applications within a 14 to 45-day window count as a single inquiry on your credit report, so multiple applications do not damage your score as much as you might think. After that window closes, each new process is a separate inquiry.

Compare the offers on the same terms: the credit line amount, the rate, the margin, the fees, and the draw period (how long you can borrow money before the line closes). A lower rate with a higher fee might still be better than a higher rate with a lower fee, depending on how long you plan to use the HELOC.

Alternative options if you cannot get a HELOC

If no lender will work with you, a home equity loan (a fixed-rate, fixed-payment loan) might be easier to get. Home equity loans are less flexible than HELOCs, but some lenders are more willing to approve them for borrowers with bad credit.

A cash-out refinance is another option: you refinance your existing mortgage for more than you owe and take the difference in cash. This requires a higher credit score than a HELOC in most cases, but if rates have dropped since you took out your mortgage, the monthly payment might still be lower even with the larger loan amount.

If you have time before you need the money, paying down your credit card balances and making on-time payments for six to twelve months will raise your score and open up better offers. Each month of on-time payments helps more than you might expect.

Frequently Asked Questions

What is the lowest credit score a HELOC lender will accept?

Some lenders will work with scores as low as 580, but most have a floor between 620 and 660. The lower your score, the fewer lenders will consider you and the higher your rate will be. Call lenders directly to ask whether they work with your specific score before you explore.

Can I get a HELOC if I have missed payments in the past year?

It depends on how recent the missed payments are and how many there are. A single missed payment from eight months ago is less damaging than two missed payments in the past three months. Lenders look at the pattern, not just the score. Be prepared to explain what happened and why it will not happen again.

Do I have to use the HELOC right away?

No. Once the HELOC is open, you can draw money whenever you need it during the draw period, which is typically 5 to 10 years. You only pay interest on the money you actually borrow, not on the full credit line. Some lenders charge an annual fee even if you do not use the line; ask about this before you sign.

What happens to my HELOC if my home value drops?

If your home loses value, the lender can reduce your credit line or freeze it entirely. This happened to many borrowers during the 2008 housing crisis. The lender can also demand repayment if you miss payments or if the loan terms allow it. Check the agreement for what triggers a freeze or reduction.

Is a HELOC better than a personal loan if I have bad credit?

A HELOC usually has a lower interest rate than a personal loan because it is secured by your home. However, a personal loan does not put your home at risk if you cannot repay it. The choice depends on how much you need to borrow, how long you need the money, and whether you are comfortable using your home as collateral.