You can get a HELOC with bad credit, but you'll pay more for it and face stricter terms

A HELOC is still available to borrowers with credit scores below 620, but lenders will charge higher interest rates, require a larger equity cushion, and may cap how much you can borrow. The core issue is that a HELOC is unsecured once you draw from it — the lender has no collateral beyond your home equity, so bad credit signals higher risk to them. Some lenders specialize in bad-credit HELOCs; others won't touch them at all. Your actual approval odds depend on your equity position, income stability, and which lenders you approach.

Key Takeaways

  • Lenders with bad-credit HELOC programs typically require at least 15% to 20% equity remaining after the HELOC is opened, compared to 10% or less for borrowers with good credit.
  • Interest rates on bad-credit HELOCs run 2% to 4% higher than rates for borrowers with credit scores above 740, and some lenders charge variable rates that can climb during the draw period.
  • Your income and employment history matter as much as your credit score — lenders want proof you can actually repay what you borrow, not just that you own the home.
  • Credit unions and portfolio lenders (banks that keep loans on their own books rather than selling them) are more likely to approve bad-credit HELOCs than national banks or mortgage brokers.
  • A recent late payment or collection account will disqualify you from most HELOC programs, even if your overall score is acceptable; timing matters as much as the score itself.

Why credit score alone doesn't determine HELOC approval

A HELOC is a line of credit secured by your home's equity, but once you draw money, the lender's claim becomes subordinate to your first mortgage. That means if you default and the home sells, the first mortgage gets paid first. Lenders compensate for this risk by looking beyond your credit score to your equity position, income, and recent payment history.

A score of 580 with stable employment and 30% equity is a different risk profile than a score of 620 with spotty income and 15% equity. Lenders weight these factors differently. Some will approve the first scenario and deny the second, even though the score is higher. This is why shopping around matters — different lenders have different risk appetites and different pricing models for bad-credit borrowers.

Equity requirements are stricter for bad-credit borrowers

Most HELOC lenders require you to maintain a minimum equity cushion — the amount of home value you keep untouched. For borrowers with good credit, this cushion is often 10% to 15%. For bad-credit borrowers, it jumps to 15% to 25%.

Here's what that means in practice: if your home is worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity. A lender might let a good-credit borrower access $85,000 (keeping 15% equity). A bad-credit lender might cap you at $60,000 to $75,000 (keeping 20% to 25% equity). The worse your credit, the larger the cushion they demand. Some lenders won't even open a HELOC if your total equity is below 20%.

Interest rates and terms cost more with bad credit

Bad-credit HELOCs carry higher interest rates than those offered to borrowers with scores above 740. The difference typically ranges from 2% to 4 percentage points, though it can be wider depending on the lender and market conditions. If a prime-rate HELOC is at 8.5%, a bad-credit HELOC might be priced at 10.5% to 12.5%.

Many bad-credit HELOC programs also use variable rates tied to the prime rate, meaning your rate can climb during the draw period (the years when you can borrow). Some lenders cap the rate increase; others don't. Read the disclosure documents carefully — the initial rate and the maximum rate are two different numbers. You also may face higher annual fees, closing costs, or prepayment penalties. These costs add up quickly on a line of credit you plan to use repeatedly.

Recent delinquencies matter more than old ones

A late payment from five years ago is less damaging than one from six months ago. Most HELOC lenders have a "seasoning" requirement — a waiting period after a negative event before they'll approve you. A collection account settled two years ago might be acceptable; one settled last month probably won't be. A foreclosure or short sale typically requires a three- to five-year waiting period before any lender will consider you.

If you're currently behind on any debt or have an active collection case, you won't be approved for a HELOC. Lenders see this as a sign you can't manage the debt you already have. The same applies if you're in active bankruptcy. You need to be current on all accounts and have no recent defaults before approaching a lender.

Income verification and employment history carry real weight

Lenders need proof that you can repay what you borrow. This means recent pay stubs, tax returns, and employment verification. If you're self-employed, you'll need two years of tax returns and possibly a CPA letter. If you're on commission or have variable income, lenders will average your earnings over the past two years and use the lower figure.

Job-hopping or gaps in employment raise red flags. A lender wants to see stable income, ideally from the same employer for at least two years. If you've changed jobs recently, be ready to explain why and provide documentation that your new income is stable. Unemployment, even if brief, can disqualify you or force you to wait until you've been employed for six months to a year.

Where to find lenders willing to work with bad credit

National banks and mortgage brokers often have strict credit cutoffs and won't consider borrowers below 640 or 660. Credit unions, regional banks, and portfolio lenders (banks that keep loans on their own books) are more flexible. Credit unions in particular often have lower credit score minimums and more lenient equity requirements because they're member-owned and can take a longer view of risk.

Online lenders and fintech companies have entered the HELOC market and some specialize in bad-credit borrowers, though their rates and terms vary widely. Before applying, check whether the lender reports to the credit bureaus — some don't, which means the HELOC won't help rebuild your credit even if you pay on time. Ask directly about their credit score minimum, equity requirement, and rate range for your situation. Getting pre-may have access to (a soft inquiry that doesn't hurt your score) lets you compare offers without multiple hard inquiries.

Frequently Asked Questions

What credit score do I need to get a HELOC?

Most lenders require a minimum score of 620, though some go as low as 580 and others won't consider anyone below 640. The score is only one factor — your equity, income, and recent payment history matter equally or more. Call lenders directly and ask their minimum before applying.

Will applying for a HELOC hurt my credit score?

Yes, each application triggers a hard inquiry, which lowers your score by a few points. Multiple inquiries within 14 to 45 days (depending on the scoring model) usually count as one inquiry, so apply to several lenders within a short window if you're shopping around. The impact is temporary and fades within months.

Can I get a HELOC if I'm behind on my mortgage?

No. You must be current on your first mortgage and all other debts. If you're behind, focus on catching up before approaching a HELOC lender. Once you're current, you'll typically need to wait at least six months to a year before applying, depending on the lender.

What if I don't have much equity in my home?

Most lenders require at least 15% to 20% equity for bad-credit borrowers. If you have less, you won't may have access to. You can wait until your home appreciates or your mortgage balance drops, or explore a cash-out refinance instead, though that also requires decent credit and equity.

Are there alternatives to a HELOC if I have bad credit?

A home equity loan (a lump sum rather than a line of credit) sometimes has slightly looser credit requirements than a HELOC. A cash-out refinance replaces your entire mortgage and may be available if you have enough equity, though rates will be higher with bad credit. Personal loans don't require home equity but carry much higher interest rates.