Banks will lend against your home equity even with bad credit, but you'll pay more and borrow less

A home equity line of credit (HELOC) uses your house as collateral, which means lenders care less about your credit score than they do for unsecured loans. You can get a HELOC with a credit score below 620, but expect higher interest rates, larger down payments on the equity you're borrowing against, and stricter limits on how much you can borrow. The lender is protected because they can foreclose if you don't pay — so bad credit makes you riskier as a borrower, but not impossible.

The process is the same as getting a HELOC with good credit: you explore, the lender orders a home appraisal, they verify your income and debts, and they decide how much equity you can access. What changes with bad credit is the approval odds and the terms you'll receive. Some lenders won't touch borrowers below a certain score; others will, but at rates 2 to 4 percentage points higher than borrowers with scores above 740.

Key Takeaways

  • Credit unions and community banks are more likely to approve HELOCs for borrowers with bad credit than national banks are.
  • You'll need at least 15 to 20 percent equity in your home, and lenders may require 30 percent or more if your credit is below 620.
  • Interest rates for bad-credit HELOCs typically run 2 to 4 percentage points higher than rates for borrowers with good credit.
  • Your debt-to-income ratio matters as much as your credit score — lenders want to see that you can afford the monthly payment even if you max out the line.
  • A co-borrower with better credit or a larger down payment on the equity can improve your odds of approval.

Where to look for lenders willing to work with bad credit

National banks like Chase, Bank of America, and Wells Fargo have minimum credit score requirements that often sit at 680 or higher. If your score is below that, you're unlikely to pass their automated screening. Credit unions and community banks have more flexibility and often review applications manually instead of relying on a single number.

Start with credit unions you're already a member of, or look for one in your area through CO-OP or Alliant. These institutions often lend to members with credit scores in the 600s because they know your banking history with them. Community banks — the kind with one or two branches in your town — also tend to have lower minimum scores and may care more about your income stability and home equity than your past credit mistakes.

Online lenders and mortgage brokers are another route. Some specialize in bad-credit HELOCs and will shop your process to multiple lenders at once. Be cautious: some charge upfront fees or have predatory terms. Always read the full disclosure documents before you commit.

How much equity you need and how much you can borrow

Lenders typically require you to keep 20 percent of your home's value as equity they don't lend against. This means if your home is worth $300,000 and you owe $150,000 on your mortgage, you have $150,000 in equity. A lender might let you borrow up to $120,000 (80 percent of the home's value minus what you owe). With bad credit, that threshold often rises to 30 percent, meaning you'd only be able to borrow $90,000 in the same scenario.

The appraisal is the first real hurdle. The lender orders it to confirm your home's value, and you usually pay for it upfront — typically $300 to $600. If the appraisal comes in lower than you expected, your borrowing limit drops. This is why getting pre-approved estimates from multiple lenders before ordering an appraisal can save you money: you can compare what they say you might borrow without paying for an appraisal each time.

What lenders look at besides your credit score

Income and employment matter more with bad credit. Lenders want to see that you've been in the same job for at least two years, or that you have a stable income history even if you've changed employers. Self-employed borrowers face extra scrutiny and usually need two years of tax returns.

Debt-to-income ratio is the percentage of your gross monthly income that goes to debt payments. Most lenders want this below 43 percent, and some require it below 36 percent for bad-credit borrowers. If you earn $5,000 a month and already owe $1,500 in car loans, credit cards, and mortgage payments, adding a $500 HELOC payment would push you to 40 percent — acceptable to some lenders, too high for others.

Payment history on your current mortgage carries weight. If you've been late on your mortgage, a HELOC lender will see that as a red flag because they're in second position — they get paid after your mortgage lender if you default. A clean mortgage payment record for the last two years helps offset a low credit score.

Recent negative marks like foreclosure, bankruptcy, or a judgment will disqualify you from most HELOC lenders, or require you to wait several years after the event. A bankruptcy discharge typically requires three to seven years of waiting, depending on the lender.

Interest rates and fees you'll encounter

HELOC interest rates are variable, meaning they move with the prime rate. Right now, rates for borrowers with good credit sit around 8 to 9 percent. For bad credit, expect 10 to 13 percent or higher, depending on how low your score is and which lender you use. The rate you're offered also depends on how much equity you're borrowing against — borrowing 50 percent of your home's value gets a better rate than borrowing 80 percent.

Beyond interest, watch for these fees: origination fees (1 to 2 percent of the credit line), appraisal fees ($300 to $600), title search and insurance ($200 to $400), and annual membership fees (some lenders charge $50 to $100 per year). A few lenders waive some fees for bad-credit borrowers to make the deal more attractive, but most don't. Add these costs into your decision about whether a HELOC makes sense for what you're borrowing.

How to improve your odds before you explore

If you have time before you need the money, spend three to six months raising your credit score. Pay all bills on time, pay down credit card balances to below 30 percent of your limits, and dispute any errors on your credit report. A 50-point increase in your score can lower your interest rate by half a percentage point or more, which saves real money over the life of the loan.

Gather documentation before you explore: recent pay stubs, two months of bank statements, two years of tax returns if you're self-employed, and a list of all debts with current balances. Having these ready speeds up the process and shows lenders you're organized.

If you have a co-borrower with better credit — a spouse, partner, or adult child — adding them to the process can improve your terms. They don't have to own the home, but they do become responsible for repaying the debt if you don't. This is a serious commitment for them, so be clear about what you're asking.

What happens after you're approved

Once approved, you'll sign closing documents similar to a mortgage closing. The lender will order a final appraisal, verify your employment one last time, and confirm that nothing has changed since your process. This is when they'll catch if you've opened new credit cards or missed a payment — either can kill the deal.

After closing, you'll receive a checkbook or debit card to draw from your line of credit. You only pay interest on what you actually borrow, not on the full amount available. During the draw period (usually 5 to 10 years), you can borrow and repay as many times as you want. After the draw period ends, you enter the repayment period, when you can no longer borrow and must pay down the balance.

Alternatives if HELOC approval seems unlikely

A home equity loan is a fixed alternative: you borrow a lump sum at a fixed rate and repay it over a set term. Lenders are sometimes more willing to approve these for bad-credit borrowers because the terms are locked in and predictable. The downside is you get all the money at once and pay interest on it when ready, even if you don't need it yet.

A cash-out refinance lets you refinance your mortgage for more than you owe and pocket the difference. This works if your home has appreciated and you can may have access to for a new mortgage. Rates are usually lower than a HELOC, but you're extending your mortgage term and paying closing costs again.

If you don't have enough equity or your credit is too damaged, a personal loan from a credit union or online lender is an option, though rates will be higher and you won't have the tax deduction you'd get from a HELOC (interest on home equity debt is deductible up to $750,000 of borrowed funds).

Frequently Asked Questions

What credit score do I need to get a HELOC?

Most national banks require 680 or higher, but credit unions and community banks often work with scores as low as 600. Some lenders have no stated minimum but charge higher rates for scores below 620. Call lenders directly to ask their actual minimum rather than relying on their website, which may list only their best terms.

Can I get a HELOC if I've had a foreclosure or bankruptcy?

Most lenders require three to seven years to have passed since a bankruptcy discharge or foreclosure completion. Some credit unions may consider applications sooner if you can show strong income and a clean payment record since the event. You'll need to explain what happened in writing.

Will getting a HELOC hurt my credit score?

The process triggers a hard inquiry, which lowers your score by a few points temporarily. Opening the account adds a new line of credit, which can lower your score short-term but improve it long-term if you use it responsibly. The impact is usually small compared to the benefit of having a lower credit utilization ratio.

What if I'm denied for a HELOC?

Ask the lender why. If it's your credit score, work on raising it before reapplying. If it's insufficient equity or debt-to-income ratio, those are harder to fix quickly. Try a different lender — credit unions and community banks have different standards than national banks. A home equity loan or cash-out refinance may be more achievable.

Can I use a HELOC to pay off credit card debt?

Yes, and it often makes financial sense because HELOC rates are lower than credit card rates. But be cautious: you're converting unsecured debt into secured debt backed by your home. If you can't repay, the lender can foreclose. Only do this if you're confident you won't run up the credit cards again.