HELOC Credit Score Requirements

Are you looking for help to find out the minimum HELOC credit score requirements and how they impact your HELOC application? Find out tips to improve your credit score so you can qualify for a competitive home equity line of credit that meet your needs.

How Much HELOC Can I Get with My Credit Scores?

Home equity line of credit (HELOC) loans allow you to use the equity in your home for cash. A minimum HELOC credit score is required.

It’s a secure loan where your home is the collateral. You can borrow money against the property based on your equity percentage.

However, the approval and the amount also depend on your credit score, among several other factors.

In this article, you’ll learn about the minimum credit score for HELOCs. I’ll also talk about HELOC for those with bad credit scores.

The Importance of Credit Scores for HELOC

Before we talk about the minimum HELOC credit score, it’s worth discussing why it’s a requirement in the first place.

You may wonder why a credit score is necessary when your home’s equity is the basis of the line of credit.

The thing is that having a solid credit score makes it easier for lenders to let you borrow money.

Like other scenarios in which your creditworthiness plays a role, HELOC lenders also use your credit score to secure their interest.

A good credit score shows them that you’ll pay your dues on time and would likely not default.

But your credit score’s importance doesn’t end there – it also helps determine the rate and terms.

Generally, the higher the credit score you have, the easier it becomes to get the best available interest rates on the HELOC.

Again, it’s all about your creditworthiness– a higher credit score makes lending you money less risky, allowing lenders to give you a lower rate.

What Are HELOC Credit Score Requirements Today?

After surveying some of the top HELOC lenders in the country, I discovered that the minimum credit score for HELOC is 680.

That said, you’re likely to get an easy and quick approval if your credit score is 700+.

Some lenders may lend money in HELOC to individuals with a credit score of 620 or above. However, in such cases, you can expect a relatively higher rate.

Also, the requirement typically does not allow for wiggle room, which means the minimum score is necessary even for initiating the process.

Other Requirements for HELOC

Credit score is important, but it’s only a part of the equation. There are several other requirements for HELOC that you must meet.

Here are those requirements:

Home Equity

Of course, the basic requirement is having equity in your home. The minimum requirement is usually 15 to 20 percent.

If you have higher equity, for example, over 85 percent, you may not necessarily get a line of credit equivalent to that.

Lenders have limits on how much you can borrow using your equity. This is typically based on the combined loan-to-value (CLTV) ratio.

CLTV takes into account the mortgage balance and your home’s current value. Typically, lenders keep CLTV 85 percent or lower.

If the CLTV is high, the interest rate may also be high.

Here’s how you calculate CLTV:

CLTV = (the amount that you want to borrow + existing mortgage or home equity loan balance) / value of the home

Credit History

Your credit history is just as important as your credit score for HELOC lenders. They may review your credit reports for any previous defaults, foreclosures, bankruptcy, etc.

A lender may not accept your application even if you meet the minimum credit score requirement but have too much debt.

If your credit history includes negative items, you may still be able to get an equity loan or HELOC if you satisfy other requirements.

Debt-to-Income Ratio

Another important consideration is the debt-to-income (DTI) ratio, the difference between how much you and how much you make.

A high DTI indicates that you have a lot of debt and that a major chunk of your income goes toward debt payments.

Ideally, you want a 43 percent DTI or lower to qualify for HELOC. However, some lenders may require a DTI as high as 55 percent.

If you have a favorable DTI, lenders may readily approve your HELOC application.

Besides DTI, some lenders may also examine your employment and pay to determine your capacity to repay.

Can You Get a HELOC with Low Credit Scores?

Although most second mortgage lenders set a minimum credit requirement for HELOC, some may consider applicants for a HELOC with a low credit score or a poor credit history, provided they meet other requirements well above the minimum.

The minimum credit score for a HELOC loan ranges from 640 to 700 in most banks.  However, the minimum credit score for Non QM and private money lenders ranges from 550 to 620. These high risk HELOC loans carry a higher interest rate, but the opportunity is there for borrowers with less than average credit.

Let’s say you have a credit score below 700. The lender may consider other factors, such as DTI or CLTV.

If you have a higher equity in your home, you can use that to your advantage by requesting a smaller HELOC. That will essentially bring your CLTV down and improve your chances.

Your home equity is basically the collateral, so the more you have, the more security the lender has.

As I mentioned before, your DTI can also be a game changer in scenarios where you’re barely meeting the minimum HELOC credit score requirement.

If you have a low DTI, the lender may still consider granting you a HELOC despite bad credit.

While you may qualify for the line of credit on your home equity despite bad credit, you may not necessarily get a great rate.

The right home equity lender may offer a smaller loan or charge a higher rate if you require a bigger amount.

How Much HELOC Can You Qualify for Based on Your Credit Score?

You can calculate a home equity line of credit using a calculator online. Most lenders will offer a basic calculator to estimate how much you’ll be able to borrow (if at all).

Again, your credit score isn’t the only thing determining your eligibility and the sum you can borrow over a period.

That said, your credit score, current home value, and outstanding mortgage balance are enough for a rough idea before you begin the application.

How Does HELOC Affect Your Credit Score?

A HELOC application requires a hard credit pull, which can temporarily affect your credit score.

So, it’s important to be absolutely certain and do your homework about the lender and the requirements before you apply.

Once your HELOC has been approved, its impact on your credit score is like any other debt. It depends on how well you manage it.

Unlike a mortgage or home equity loan, it’s reported like a revolving credit. If you pay the HELOC payments on time, you can use it to improve your credit score.

Similarly, if you use the cash from HELOC to pay off other debts, you may see improvements in your credit score.

Closing a HELOC also impacts your credit score, especially if you don’t have other credit available. Essentially, if you have a big debt balance, you can expect a hit on your credit score.

Improving Your Credit Score for HELOC

If you have a low credit score and want to apply for a HELOC, you can work to improve your score.

Of course, that will take some time, but it’s entirely possible. You can build good credit with sound financial management and raise your credit score to the minimum requirement set by the lender.

Here’s how you can do that:

Check Your Credit Report

It’s not uncommon for faulty items in your credit report to lower your score. Credit reporting companies offer free annual credit reports.

Look for any reporting errors in your credit report, such as fraudulent accounts or wrong payments. You can request that such records be removed, which will improve your credit score.

Pay Debts and Avoid Late Payments

Paying your debit will work in your favor and improve your chances of getting HELOC approval in two ways. It will improve your credit score and bring down your DTI.

More importantly, avoid late payments on your bills, as those directly impact your credit score.

Ensure you’re paying the minimum monthly amounts on your credit cards.

Final Thoughts on HELOCs and Credit Scores

The HELOC credit score requirement is an important one, but not the only one. While you need a score of 680 or higher, you may still be able to get one if other requirements are met.

That said, your chances are smaller if you have a low credit score and a bad credit history and may not get favorable conditions.

Besides your credit score, how much you owe on your home (and other loans) also plays a big role. So, even with a good credit score, a high DTI will negatively impact your application.

The RefiGuide can help you uncover the best home equity loans and HELOCs that are available with your specific credit score. You can shop with multiple lenders and brokers that will outline the current minimum HELOC credit score requirements so you can know what is available and if you meet the HELOC guidelines for the amount you want to borrow and the best possible HELOC interest rate.

FAQs

Can I get a HELOC with a 600-credit score?

Most lenders require at least a credit score of 680 for HELOC. If you have a score of 600, you may still be able to qualify, but you may need to do so at a higher rate.

Other requirements, such as the CLTV and DTI, may help you satisfy the lender for HELOC. If you do not qualify for a HELOC loan because your fico scores are too low, consider refinancing. See the current refinance mortgage credit score requirements.

What are the most common reasons an applicant gets disqualified for a HELOC loan?

You may not be approved from accessing a HELOC if you fail to meet the lender’s criteria. The most common reasons borrower get declined is insufficient home equity (LTV is too high), inadequate income, or your credit score is below the minimum HELOC credit requirements.

Can you refinance your HELOC?

Much like a mortgage, you can refinance a HELOC or home equity loan if your current lender is offering you poor conditions like a high interest rate or not enough money.

It also depends on whether another lender or bank is willing to offer you HELOC refinancing.

You’ll need to apply for a new HELOC with the new lender and begin refinancing.

What is the maximum HELOC amount?

Most lenders limit HELOC up to 85 percent CLTV. This means that the ratio of your current mortgage balance and HELOC amount over your current home value can’t be higher than 85 percent.

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