Getting a HELOC with bad credit: What to know

This article is for informational purposes only and is not intended to provide, and should not be relied on for, medical, legal, financial, or tax advice. You should consult with a qualified professional for advice specific to your situation. Consumers should independently verify that any services, products, or programs referenced meet their needs and comply with applicable requirements.

Getting a HELOC with bad credit may be possible, but it usually takes a stronger overall financial picture. Lenders may look more closely at your home equity, debt-to-income ratio (DTI), income, credit history, and the value of the home before deciding whether to approve you.

Rocket Mortgage currently doesn’t offer HELOCs, but understanding how they work can help you determine your next step with confidence. Here’s what to know before you apply for a HELOC with low credit or compare other ways to use your home equity.

Key takeaways:

• Getting a HELOC with bad credit may be possible, but lenders often review your full financial profile before approving you.
• A lower credit score can lead to stricter requirements, higher costs, a smaller credit limit, or a denied application.
• If a HELOC isn’t the right fit, you may want to compare a home equity loan, cash-out refinance, personal loan, credit card, or another option.

Can you get a HELOC with bad credit?

You may be able to get a HELOC with bad credit, but approval can be harder. Lenders set their own requirements, and a low score may need to be balanced by stronger factors like steady income, manageable debt, and enough home equity.

There’s no single official definition of “bad credit.” For base FICO^® Scores, Experian^® uses the following ranges:

What is the minimum credit score for a HELOC?

Each lender sets its own HELOC credit score requirements. A 620 score is a common benchmark, and a score around 680 may improve your approval odds and rate options.

Credit score matters, but it’s not the only factor.

Can you get a HELOC with a 500 credit score?

Getting a HELOC with a 500 credit score will likely be difficult. A score that low is below common HELOC credit score benchmarks, so a lender may deny the application or require strong compensating factors.

Those factors could include significant equity, stable verifiable income, a low DTI, a strong recent payment history, or a qualified co-signer or co-borrower if the lender allows one. Still, no single factor guarantees approval.

How a HELOC works

A HELOC allows you to borrow, repay, and borrow again against your available equity up to a credit limit. After a certain amount of time, the balance freezes and repayments on the full HELOC amount begin.

Revolving credit

A HELOC is a revolving line of credit secured by your home. This means it works more like a credit card than a lump-sum loan because you can borrow from the line again as you repay it during the draw period.

The big difference is the collateral. A credit card is usually unsecured, while a HELOC uses your home as secured debt.

Draw period and repayment period

Many HELOCs have a draw period, when you can access funds, followed by a repayment period, when you can no longer borrow and must repay what you used. The exact timing depends on the lender and your loan terms.

Payments may change after the draw period ends. That’s why it’s important to understand when repayment starts, how payments are calculated, and whether your rate can adjust.

Interest-only payments

Some HELOCs allow interest-only payments during the draw period. That can keep payments lower for a time, but it doesn’t reduce your principal balance.

Once repayment begins, payments may rise because you may need to repay both principal and interest.

Why would you want a HELOC with bad credit?

Homeowners often consider a HELOC when they want flexible access to money for a specific goal. Common uses include home renovations or remodeling, debt consolidation, unexpected medical bills, education costs, or investment property expenses.

The flexibility can be useful when you don’t know the full cost of a project upfront. Instead of taking a lump sum, you can borrow as needed during the draw period, subject to your lender’s terms.

HELOCs are great for projects that you might complete in phases over time or even as a series of projects because you can pull funds out and put them back throughout the draw period.

That flexibility comes with risk. If you use a HELOC to pay off credit card debt, you may be moving unsecured debt into a loan secured by your home. Since your property is collateral, if you can’t repay the HELOC, the lender may be able to foreclose.

What other factors do HELOC lenders consider?

Credit score is important, but HELOC lenders usually want to understand the full picture. That can include home equity, appraised value, loan-to-value ratio (LTV), DTI, income, employment, payment history, and recent adverse credit events.

Home equity and appraised value

Home equity is the difference between your home's current fair market value and what you owe on it. The more equity you have, the more room a lender may have to approve a line of credit, but requirements vary by lender.

Loan-to-value ratio

LTV compares the amount financed with the appraised value of the home. Lenders may use LTV to decide how much you can borrow and what interest rate you may be offered.

For a HELOC, lenders may also look at combined loan-to-value, which considers your first mortgage plus the new line of credit. If your LTV is 80%, you have about 20% equity before transaction costs. That makes LTV the inverse of equity.

Requirements vary quite a bit based on lender policies, but you can expect maximum LTV to be between 60% – 85%.

Debt-to-income ratio

DTI is your monthly debt payments divided by gross monthly income. Lenders use it to evaluate whether you can manage monthly payments on the money you want to borrow.

A lower DTI generally helps because it shows more room in your budget. If your DTI is above 50%, approval may be less likely with many lenders.

Income, employment, and proof of income

Lenders typically want to verify that you have reliable income to repay what you borrow. That may mean reviewing pay stubs, tax returns, bank statements, or other financial documents, depending on the lender and your situation.

If your credit score is low, steady income can be especially important. It helps the lender understand whether the new payment fits your budget.

Payment history and recent adverse credit events

Payment history is the biggest factor when it comes to credit scoring models. A history of on-time payments can support your application, while recent missed payments can make approval harder.

Recent late payments, collections, bankruptcy, or foreclosure can make HELOC approval harder. Depending on the lender, some events may trigger waiting periods or extra review.

How much can you borrow with a HELOC?

How much you can borrow with a HELOC depends on your home value, current mortgage balance, available equity, credit, and the lender’s LTV or combined LTV limit. Even if you have equity, you usually can’t borrow all of it.

For more detailed guidance, you can review how lenders estimate a maximum HELOC amount.

How to estimate your HELOC limit

To estimate a HELOC limit, start with your home’s appraised value and multiply it by the lender’s maximum LTV. Then subtract your current mortgage balance.

For example, if your home is worth $400,000 and a lender allows up to 80% combined LTV, the maximum total debt secured by the home would be $320,000. If you owe $250,000 on your mortgage, the estimated available line could be up to $70,000 before fees, lender rules, and final underwriting.¹

What a bad credit HELOC may cost

A bad credit HELOC may cost more than a HELOC for someone with stronger credit. Lower scores can lead to higher interest rates, tighter credit limits, more restrictive terms, or a denied application.

HELOC costs can include interest and fees, and the amount you can borrow and your interest rate may depend on factors like income, credit history, and home value.

Interest costs

HELOC interest costs depend on how much you draw, the rate, how long the balance is outstanding, and whether the rate changes. Many HELOCs have variable rates, which means payments can change.

One helpful feature is that during the draw period, you generally pay interest only on the amount borrowed, not the full line available. That can make a HELOC flexible, but it can also make it easier to borrow more than planned.

Fees and optional credit insurance

Fees vary by lender. Possible HELOC costs may include application fees, appraisal fees, annual fees, transaction fees, early termination fees, closing costs, title-related fees, or other charges.

Optional add-ons, including optional credit insurance where offered, may also affect the total cost. Before accepting any optional product, ask whether it’s required, what it costs, what it covers, and whether you can cancel it.

What is the monthly payment on a $50,000 HELOC?

The monthly payment on a $50,000 HELOC depends on the interest rate, the draw period, the repayment period, and whether payments are interest-only or principal and interest.

For a hypothetical $50,000 HELOC with a 30-year term and a 10-year draw period, assume the client draws $15,000 and pays interest only during the draw period at 9.25%. In that scenario, the interest-only draw-period payment would be $115.63.

The full $50,000 during the repayment period over the remaining 20 years at 9.25% would be $457.93.

Actual payments may be different. HELOC rates, fees, balances, repayment terms, and payment structures vary by lender, credit profile, and market conditions.

Is it a good idea to get a HELOC if you have bad credit?

A HELOC may make sense if you have a clear borrowing goal, enough equity, and a realistic repayment plan. But it can be risky, especially if your credit score means you qualify only for higher-cost or more restrictive terms.

Before applying, compare the pros and cons of a HELOC with other options.

Pros of getting a HELOC with bad credit

• Flexible access to funds: You can borrow as needed during the draw period.
• Interest on the amount used: You generally pay interest on what you borrow, not the full credit limit, during the draw period.
• Potentially lower rates than unsecured debt: Home-secured borrowing may have lower rates than some unsecured options, though your actual rate depends on your profile.
• Possible tax deductibility: Interest may be deductible if the funds are used to buy, build, or substantially improve the home securing the loan, subject to IRS rules and limits.

Cons of getting a HELOC with bad credit

• Your home is collateral: Missed payments can put your home at risk.
• Costs may be higher with lower credit: A lower score can mean higher rates or stricter terms.
• Payments can change: Variable rates and the move from draw period to repayment period can raise payments.
• Borrowing power may be limited: A lender may approve a smaller line than you want.
• Negative equity can become a risk: Borrowing against your home can reduce your cushion if home values fall.

How to get a HELOC with bad credit

If you want to apply for a HELOC with bad credit, preparation matters. These steps can help you understand where you stand before a lender reviews your application.

1. Check and improve your credit

Start by checking your credit reports. You can check your credit reports once a week at AnnualCreditReport.com. Importantly, these don’t include your scores. You can get credit scores once a week from Rocket Money.

Review your reports for errors, dispute inaccurate information, make on-time payments, and look for ways to reduce revolving debt. These steps can help you strengthen your credit profile over time.

Here are a few places to start:

• Dispute inaccuracies: Mistakes on a credit report can affect your score, so report errors through the proper credit bureau dispute process.
• Commit to on-time payments: Consistent on-time payments can help support your credit profile.
• Pay down revolving debt: Reducing credit card balances can help lower credit utilization, which may support your score.

2. Audit your finances and reduce your DTI ratio

Add up your monthly debt payments, compare them with your gross monthly income, and calculate your DTI. A lower DTI can help show that your budget has room for another payment.

You can reduce DTI by paying down debt, avoiding new debt, or increasing verifiable income. Not all of those changes happen quickly, so start early if you can.

3. Determine how much equity you can borrow

Estimate your home value, current mortgage balance, and available equity before applying. This can help you decide whether a HELOC is likely to meet your borrowing goal.

Remember: Lender limits may reduce the amount you can access, even if you have a lot of equity.

4. Consider a co-signer or co-borrower

If the lender allows it, adding a qualified co-signer or co-borrower may strengthen the application. Their income, credit, and debt may help offset weaknesses in your profile.

This is a serious responsibility. A co-signer or co-borrower may be legally responsible for repayment, so everyone should understand the risk before moving forward.

5. Shop around for the right lender

Different lenders can have different HELOC credit score requirements, rates, fees, LTV limits, and repayment terms. Shopping around can help you compare costs and find a lender that fits your situation.

Shopping around for a home equity loan or HELOC can help you get better terms and a better deal.

A lender you already work with may have helpful context about your mortgage or banking history. That doesn’t guarantee approval, but it can be worth exploring while you compare options.

Ask about HELOC requirements, rates, fees, draw-period rules, repayment rules, and what happens if your application is denied.

6. Gather the necessary documents

A HELOC is secured by your home, so expect to document your finances. The lender may ask for:

• Government-issued photo ID
• Recent pay stubs
• Tax returns
• Bank statements
• Current mortgage information
• Homeowners insurance information
• Documentation for existing debts
• A real estate appraisal or valuation

Having documents ready can keep the application moving and reduce back-and-forth.

7. Explain your credit story

If your credit report includes late payments, collections, bankruptcy, foreclosure, or another adverse event, consider preparing a brief letter of explanation.

Focus on what happened, what changed, and why your finances are more stable now. A letter won’t replace lender requirements, but it may help provide context.

8. Submit your HELOC application

Once you’ve compared lenders and gathered documents, submit your application. The lender may ask follow-up questions, verify your income, review credit, and order or review a home valuation.

Approval or denial can take days to weeks, depending on the lender, documentation, appraisal timing, and complexity of the file. Responding quickly to document requests can help keep things on track.

What to do if your HELOC application is denied

A HELOC application denied by one lender doesn’t always mean you’re out of options. Start by finding out why you were denied.

If a lender rejects your application, they must send an adverse action notice that gives the specific reasons for denial or tells you that you have the right to learn those reasons if you ask within 60 days.

After that, you can focus on the issue. That might mean improving credit, lowering DTI, building more equity, correcting credit report errors, gathering stronger documentation, or comparing HELOC alternatives.

HELOC alternatives if you have a low credit score

If you don’t qualify for a HELOC, or the costs feel too high, compare HELOC alternatives. A different option may better fit your credit, timeline, and comfort with using your home as collateral.

Home equity loan

A home equity loan is a lump-sum loan secured by your home. Unlike a HELOC, it doesn’t give you revolving access to funds. You receive the money upfront and repay it in monthly installments.

Rocket Mortgage offers Home Equity Loans, which can be useful for clients who want predictable payments and don’t want to refinance their current mortgage.² The minimum Home Equity Loan credit score at Rocket Mortgage is 680.

Cash-out refinance

A cash-out refinance replaces your current mortgage with a new, larger mortgage and lets you receive the difference in cash, minus applicable costs. Unlike a HELOC, it gives you a lump sum rather than a revolving credit line.

Whether a cash-out refinance or home equity loan makes more sense can depend on your current mortgage rate, new loan terms, costs, and how long you plan to stay in the home. A Home Loan Expert can help you compare the blended rate and overall costs. You can also review a cash-out refinance vs. a HELOC.

Personal loan

A personal loan may be unsecured, meaning you don’t use your home as collateral. That can reduce the risk of foreclosure tied to the debt.

The trade-off is that personal loans may have higher rates or shorter terms, especially for clients with lower credit scores. Compare the monthly payment, total interest, fees, and timeline before choosing.

Credit card

A credit card may work for smaller or short-term expenses, especially if you qualify for a promotional APR offer and have a clear payoff plan.

Credit cards also have higher interest rates than secured loans or personal loans based on their short-term funding nature.

Loan from family and friends

Borrowing from family or friends may be an option if someone close to you is willing and able to help. Put the agreement in writing, including the amount, repayment schedule, interest, if any, and what happens if payments are late. Clear terms can help protect the relationship and reduce confusion.

FAQ

These quick answers cover common questions about qualifying for a HELOC with bad credit, possible disqualifiers, and alternatives.

How difficult is it to get a HELOC with bad credit?

It can be difficult to get a HELOC with bad credit, but it depends on your score, equity, DTI, income, home value, credit history, and lender requirements. A lower score may lead to stricter terms, a smaller credit limit, higher costs, or denial.

What disqualifies you for a HELOC?

Potential HELOC disqualifiers include insufficient equity, high DTI, inadequate income, poor payment history, recent bankruptcy or foreclosure, property issues, or missing documentation. Requirements vary by lender, so one denial doesn’t mean every lender will make the same decision.

Can I get a home equity loan with no credit check?

No, not through a typical mortgage lender. Lenders need to get a look at your credit score and DTI, among other factors, and these are typically accessed through your credit report.

Can you use a HELOC to pay off debt?

Yes, paying off debt is a common HELOC use. But it’s important to compare the risk. If you use a HELOC to pay off credit cards, you’re moving unsecured debt into debt secured by your home.

That may reduce interest costs in some situations, but it also means missed HELOC payments could put your home at risk. Compare the total cost, payoff timeline, fees, and your plan to avoid adding new debt.

HELOC vs. credit card: Which should you choose?

A HELOC may offer flexible access to funds and potentially lower rates than some credit cards, but it uses your home as collateral. A credit card may be faster and unsecured, but it can have higher interest costs and lower borrowing limits.

Choose based on the expense, repayment plan, total cost, and how comfortable you are using your home to secure the debt.

The bottom line: A HELOC may be possible with a lower credit score

Getting a HELOC with bad credit may be possible, but it can be harder and more expensive. Before you apply, review your credit, estimate your equity, calculate your DTI, compare lender requirements, and make sure the repayment plan fits your budget.

Rocket Mortgage doesn’t currently offer HELOCs. If you think a cash-out refinance or Home Equity Loan might work better for you, apply online.

¹ Any figures, interest rates, loan examples, and market data referenced in this article are hypothetical or aggregated for educational purposes only. They are not intended to reflect current pricing, available terms, or personalized loan options for any consumer. This content does not constitute an advertisement of credit terms, a solicitation or offer to extend credit, or a rate quote under federal or state lending laws. Actual mortgage rates and terms are determined by individual financial qualifications, property characteristics, market conditions, and other factors, and are subject to change without notice.

If you are seeking current, real-time mortgage rate information please refer to the official live rate information and product details published at RocketMortgage.com/mortgage-rates, where current pricing and various loan terms are made available.

² Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Rocket Mortgage and Rocket Money are trademarks or service marks of Rocket Mortgage LLC or its affiliates.