How to Get a Home Equity Loan or HELOC with Bad Credit

Many homeowners have equity in their homes but struggle with low credit scores. This can make tapping into that equity feel out of reach. Fortunately, even with bad credit, you may still qualify for a home equity loan or HELOC.

In this guide, we’ll walk through what “bad credit” means, what lenders look for, which types of lenders are more flexible, and the steps you can take to improve your chances. We’ll also compare second-lien options with cash-out refinances and highlight when each makes the most sense. For those wanting to avoid refinancing altogether, we’ll also touch on alternatives that preserve your existing mortgage.

What Is Considered Bad Credit for Home Equity Loans?

Credit score thresholds matter significantly when applying for a home equity loan or HELOC:

• 620 is generally the minimum for most second-lien home equity products.
• 680+ is preferred by most traditional lenders for smoother approvals.

If your score is under 680, you’ll need to shop more carefully and provide compensating factors to improve your approval odds.

Can You Qualify for a HELOC or Home Equity Loan with a 620 Credit Score?

The Short Answer

Yes, it’s possible, but not guaranteed. Many lenders will not go below 680. Some, however, will work with scores as low as 620, especially if you have other strong financial indicators.

Who Offers These Loans?

• Non-bank lenders / mortgage brokers
• Non-delegated correspondent lenders
• Not typically available from most big banks and credit unions

Traditional institutions often have stricter internal guidelines that limit flexibility. Working with a broker opens access to a broader range of investor programs.

Compensating Factors That Improve Your Chances

According to Experian, lenders typically require sufficient equity, solid payment history, proof of income, and good credit to approve home equity financing. To strengthen your application, consider these compensating factors:

• More Home Equity: Aim for a loan-to-value (LTV) ratio of 80% or less.
• Lower Debt-to-Income (DTI): Keeping your DTI under 43% can help.
• Stable Income and Employment: Lenders want to see at least two years of job stability.
• Cash Reserves: Having savings or retirement funds boosts confidence in your ability to repay.
• Recent Positive Credit Behavior: A recent pattern of on-time payments can help offset past issues.

These elements can increase lender confidence even when your credit score is on the lower side.

HELOC vs Home Equity Loan for Low Credit Borrowers

Lenders evaluate HELOCs and home equity loans differently, especially for applicants with credit concerns:

• Fixed-rate home equity loans may be preferred because they offer predictable payments.
• HELOCs can carry more risk due to variable interest rates, which fluctuate over time.

To explore this further, check out our comparison of HELOCs vs Home Equity Loans.

When to Consider a Cash-Out Refinance Instead

If your credit score is in the low to mid-600s and you’re looking to consolidate debt or access a large sum, a cash-out refinance might make more sense. Government-backed options, like FHA and VA cash-outs, often allow for higher DTI ratios and more credit flexibility.

However, refinancing isn’t right for everyone. If your current mortgage has a great rate, consider other ways to access home equity without refinancing.

Working with the Right Type of Lender

Choosing the right lender can make or break your application:

• Banks and credit unions often have rigid overlays and may not approve lower scores.
• Mortgage brokers and non-delegated lenders have access to more flexible investor programs.

Tip: Ask your lender directly if they offer home equity loans or HELOCs down to a 620 credit score.

Steps to Improve HELOC or Home Equity Loan Approval Odds

Here are proactive steps you can take to boost your chances:

1. Pay down credit cards to lower your utilization ratio.
2. Add a co-signer or joint applicant with stronger credit.
3. Maintain stable income and avoid job changes.
4. Wait 3–6 months while improving your credit profile before applying.
5. See if credit disputes make sense for any inaccurate items on your credit report.

Even a modest credit score improvement can unlock better terms and lower rates.

Qualifying for a home equity loan or HELOC with bad credit is possible. However, it requires the right lender and the right strategy. By emphasizing compensating factors, shopping carefully, and improving your credit where possible, you can often unlock your home’s equity even with a challenged credit profile.

If you’re unsure which option is best, speak with a mortgage broker who understands the nuances of second-lien financing. And if you’re not ready to refinance, explore ways to tap into your equity without refinancing for more tailored solutions.