How to Get a HELOC With Bad Credit

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ByChristopher Boston
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Reviewed byTimothy Manni
Contributions by6+ experts
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Updated: April 9, 2024

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A Home Equity Line of Credit (HELOC) allows you to borrow money using your home's equity as collateral. It works somewhat like a credit card, offering flexibility in borrowing and repaying funds. However, if your credit score isn't strong, securing a HELOC can be challenging. Lenders often hesitate to offer credit to those with lower scores due to the perceived risk.

We'll explore what to consider before applying, the pros and cons, how to apply and ways to enhance your credit. Even with bad credit, getting a HELOC is possible with the right information and approach.


What to Consider Before Getting a HELOC With Bad Credit

Before diving into a HELOC with bad credit, pause and evaluate several key aspects — your financial choices today can have lasting effects. Jumping into a HELOC application without proper thought could lead to unfavorable terms or financial strain. Here’s what you should consider to make an informed decision:


When considering a HELOC with bad credit, it's not just about whether you can get it — it's also about whether it's the right choice for you. Weighing these considerations helps ensure that your decision supports your financial well-being both now and in the future.

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Even for homeowners with excellent credit, HELOCs are inherently tricky products to manage. HELOCs are long-term commitments; they can have adjusting rates, and repayment kicks in whether you're ready for full payments or not. Most importantly, your home is used as collateral should you default. — Timothy Manni, Mortgage and Real Estate Consultant

Pros and Cons of Getting a HELOC with Bad Credit

Getting a HELOC with bad credit can offer an advantage like access to funds when you need them. However, overlooking the potential risks can lead to financial difficulties. Not having a balanced view before applying for a HELOC can result in agreeing to unfavorable terms, leading to future financial strain. Let's weigh the pros and cons.


While getting a HELOC with bad credit may seem like a flexible option for accessing funds, it's essential to acknowledge the associated risks, including higher costs and the potential to lose your home. It's crucial to weigh these pros and cons thoughtfully to align with your long-term financial goals. The right decision now can impact your financial future positively.

How to Apply for a HELOC with Bad Credit

Applying for a HELOC with bad credit might seem overwhelming, but it’s far from impossible. The process can differ from standard applications, potentially involving more scrutiny of your financial situation and fewer lender options. It might also mean facing higher interest rates and needing to provide more proof of your repayment ability.

Knowing what to expect can be a huge advantage. It prepares you, allowing you to present your financial situation in the best light. Despite the challenges, securing a HELOC with a less-than-perfect credit score is possible. The following steps will guide you through this journey.

Check Your Credit Standing

Before you apply for a HELOC with bad credit, know where you stand credit-wise.

Start by getting your credit report and score. Lenders will scrutinize this information. If you find errors on your report, dispute them. This can improve your credit standing. Remember, it's your right to have accurate information on your credit report.

If your report is error-free, look for areas you can improve. That could mean paying down debts or managing your credit cards better. Understanding your credit health not only prepares you for discussions with lenders but also gives you a chance to improve your standing, increasing the likelihood of your HELOC application being approved.

Calculate Your DTI Ratio

Your debt-to-income (DTI) ratio is a key factor lenders consider when you're looking to qualify for a HELOC with bad credit. It shows how much of your monthly income you use to pay existing debts. A lower figure tells lenders you're not overextended and can manage additional loan payments.

To calculate your DTI ratio, divide the amount you use to pay debts by how much you earn. For example, if your monthly debts are $500 and your income is $2,000, your DTI ratio is 25% ($500 ÷ $2,000).

Most lenders prefer a DTI ratio under 43%. If yours is higher, consider these steps to improve it:

  • Reduce Monthly Debt: Focus on paying down your high-interest debts first, like credit card balances. It lowers your DTI ratio and saves you money on interest. Even small extra payments can make a big difference over time. Consider strategies like debt snowball or debt avalanche methods for efficient debt reduction.

  • Increase Income: Boosting your monthly income can effectively lower your DTI ratio. It could mean taking on part-time work, freelancing or seeking a higher-paying job. Any additional income can be used to pay down debts, further improving your DTI.

  • Avoid New Debt: While working towards a HELOC, avoid taking on new debts. New loans or credit card balances increase your monthly obligations, raising your DTI ratio. Staying disciplined about spending and avoiding new financial commitments can keep your DTI in check.

  • Refinance Existing Debts: Refinancing loans can lead to lower monthly payments. It can be especially effective with high-interest loans like car loans or private student loans. However, be mindful of the total cost of the loan over time and any refinancing fees.

By focusing on these areas, you can significantly improve your DTI ratio, enhancing your chances to qualify for a HELOC even with bad credit. It’s about managing your finances smartly and presenting a stable financial picture to potential lenders.

Assess Your Home’s Value

Understanding your home's value is crucial when figuring out how to qualify for a HELOC with bad credit. HELOCs are based on how much equity you have in your home. Equity is the difference between your home’s market value and the amount you owe on your mortgage.

To estimate your home's value, you can start by looking at recent sales of similar homes in your area, known as comparables or "comps." However, for a more accurate assessment, investing in a professional appraisal is wise. An appraiser gives an objective evaluation of your home's worth, considering factors like location, size and condition.

Market fluctuations can impact your home’s value and, consequently, the amount you can borrow. If the market dips, your home might be valued lower, reducing your available equity.

Knowing your loan-to-value (LTV) ratio is also important. It's calculated by dividing the amount you owe on your home by its current value. Lenders use LTV to assess risk, so the lower it is, the better your chances of qualifying for a HELOC, even with bad credit. Understanding your home’s value and LTV ratio empowers you to make informed decisions about borrowing.

See How Much You Can Borrow

When looking to get a HELOC with bad credit, it's important to understand how much you can realistically borrow. Typically, lenders allow you to borrow up to 85% of your home's equity, though this percentage might be lower with bad credit. To calculate your potential loan amount, subtract any mortgage balance from your home's current value, then multiply by the percentage the lender offers.

For example, if your home is worth $200,000 and you owe $100,000 on your mortgage, your equity is $100,000. If a lender allows 85% borrowing on your equity, your potential HELOC could be up to $85,000. However, with bad credit, this percentage could be lower, reducing the amount you can borrow.

Using a HELOC calculator can provide a clearer picture of what you might qualify for. Also consider your ability to repay the loan. Borrowing more than you can comfortably repay can lead to financial strain, so assess your budget and borrow responsibly.

Research Bad Credit HELOC Lenders

Finding the best place to get a HELOC with bad credit means looking for lenders who specialize in working with your credit profile. Not all lenders are willing to offer HELOCs to those with bad credit, and those who do might have different terms and interest rates.

So, take the time to compare what different lenders offer. Look at their interest rates, fees, and draw and repayment terms. A lower rate can save you money over time, but also pay attention to the terms that dictate how and when you can access funds and repay them. You can also check if they offer discounts and if you can qualify for them — that might lessen the impact of potentially higher rates.

Read reviews about lenders. These give you insights into others' experiences, helping you gauge reliability and customer service. A lender's support can be crucial in managing your HELOC.

Consider exploring credit unions and community banks. These institutions often have more flexible lending criteria and might be more willing to work with you despite your bad credit. Their approach is usually more personalized, which can make navigating the HELOC process smoother.

Submit Your Application

When you're ready to apply for a HELOC with bad credit, gathering all necessary documents is your first step. You'll usually need the following:

  • Proof of income (e.g., pay stubs, tax returns)
  • Home documents (e.g., mortgage statement, deed)
  • Identification (e.g., driver's license, passport)
  • Recent bank statements
  • Proof of any additional assets
  • Credit report (optional, but helpful)

Understanding the application process is also important because it involves filling out forms and providing detailed financial information. Always be honest with the data you provide. Misrepresenting your financial situation can lead to problems later. After submission, expect a review period where lenders assess your application. Be prepared for questions, additional document requests or even counteroffers. Sometimes, lenders may propose different terms, so be ready for negotiations. Don’t get frustrated with the back and forth. Keep in mind that the goal is to find a HELOC that works for you, even with bad credit.

How to Improve Your Credit Before Getting a HELOC

Improving your credit score before applying for a HELOC, especially with bad credit, can significantly increase your chances of approval and potentially secure better terms. A better credit score reflects financial responsibility, making you more attractive to lenders. Let's dive into effective strategies to boost your credit score.


Taking steps to improve your credit before applying for a HELOC can be a wise move. It enhances your likelihood of approval and also leads to more favorable loan terms. A healthier credit score opens more doors and reflects well on your overall financial health.

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When deciding whether to apply for a HELOC, one important thing to consider is how much money you need to borrow. If the purpose is to finance relatively inexpensive home repairs, a HELOC may not be your best bet. Consider other options like a personal loan or even certain credit cards. — Timothy Manni, Mortgage and Real Estate Consultant

Alternatives for a HELOC When You Have Bad Credit

Sometimes, getting a HELOC with bad credit might not be the best move due to high interest rates and the risk of further damaging your score. But there are alternative financing options that might better suit your situation.


Since a HELOC with bad credit presents certain challenges, these alternatives offer different ways to access funds. Each option caters to different needs and circumstances, providing you with choices to make the best financial decision for your situation. Exploring all your options is key to making a decision that aligns with your financial goals and current situation.

Frequently Asked Questions About How to Get a HELOC with Bad Credit

Navigating the process of getting a Home Equity Line of Credit (HELOC), especially with bad credit, can bring up a lot of questions. We've compiled a list of them to help you better understand your options and what's involved.

A HELOC is a type of loan where your home serves as collateral. It's a revolving line of credit, similar to a credit card, allowing you to borrow against your home's equity up to a certain limit and repay over time. It's often used for large expenses like home renovations, education costs or consolidating high-interest debt.

Credit scores for HELOCs typically range from 300 to 850. A "good" credit score is generally considered to be 700 or above, offering better terms and interest rates. A score below 620 is often seen as "bad" credit, making it harder to secure a HELOC and usually resulting in higher interest rates and stricter loan terms.

Yes, it's possible to get a HELOC with bad credit, though it may be more challenging. Lenders may offer higher interest rates and may require additional criteria to be met, such as having more equity in your home or a lower debt-to-income ratio.

The minimum credit score required for a HELOC varies by lender but is typically around 620. However, some lenders may accept lower scores with certain conditions, like a lower loan-to-value ratio or higher interest rates.

Besides your credit score, lenders consider several factors, including your debt-to-income ratio, employment history, current income, total amount of debt and your home’s equity. These factors help lenders assess your overall financial stability and ability to repay the loan.

The approval process for a HELOC can vary, but it typically takes anywhere from a few days to a few weeks. The time frame depends on the lender, the complexity of your financial situation and how quickly you can provide necessary documentation.

If you open a HELOC and don't use it, you generally won't have to pay any interest, because interest is charged only on the amount you borrow. However, some lenders may charge an annual fee or require a minimum draw amount when you first open your account.

You should consider not taking out a HELOC if you're uncertain about your ability to make the payments, if it would put your home at risk or if the costs outweigh the benefits. It's also not advisable if you're using it for short-term expenses that don’t improve your financial position in the long run.


About Christopher Boston

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Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.

Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.