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Home Equity

What Credit Score Is Needed for Home Equity Loans?

Updated May 09, 2023   |   9-min read

A good credit score is essential for any loan, but it’s critical for home equity loans and HELOCs because they’re secured by your home. 

Knowing your credit score before applying can help you prepare for the loan process and ensure you get the best terms. You can use a free online credit score tool such as AnnualCreditReport.com to check your score in minutes.

Once you know your score, you can determine whether you might qualify for a home equity loan or line of credit from specific lenders. 

In this guide:

What credit score is needed for a home equity loan?

A home equity loan lets the borrower use their home equity as collateral. The lender uses the home’s value, minus any existing liens or mortgages, to determine the loan amount. The loan is a lump sum you pay back over a set time, often at a fixed interest rate.

The minimum credit score required to get a home equity loan varies by lender, but most lenders require a minimum credit score of 620. 

Note: The higher your credit score, the more likely you will be approved for the best rates with the best home equity lenders.

Popular lenders’ minimum credit requirements

We researched several well-known home equity lenders’ requirements.

LenderMinimum credit score required for home equity loans
U.S. Bank658
Discover620
Rocket Mortgage680

What credit score is needed for a HELOC?

Before looking at specific requirements, we’ll touch on what a home equity line of credit (HELOC) is. Like a home equity loan, the borrower can use their home equity as collateral. 

Unlike a home equity loan, a HELOC is a line of credit—similar to a credit card. The borrower can use it as needed up to a certain amount. The line of credit replenishes as you pay your balance, so you can use it multiple times. Most HELOCs have variable interest rates, and the repayment period is often shorter than on a home equity loan.

Lenders may have different credit requirements for a home equity loan versus a home equity line of credit (HELOC) due to the differences in how the borrower accesses the funds. 

A HELOC allows the borrower to access funds as needed, so lenders may require a higher credit score for a home equity loan than a HELOC. Lenders’ exact requirement varies so much that producing an accurate average is challenging. 

Popular lenders’ minimum credit requirements

We researched several well-known home equity lenders’ credit requirements.

LenderMinimum credit score required for HELOCs
Alliant Credit Union620
BMO650
PenFed700
Presidential Bank680

How important is my credit score for home equity loan or HELOC approval?

Your credit score is crucial when applying for a home equity loan or HELOC with most lenders. A high credit score will give you more favorable loan terms and lower interest rates. A poor credit score can make qualifying for a home equity loan or HELOC difficult or even impossible because lenders may be reluctant to take on the associated risks.

When considering your application for a home equity loan or HELOC, lenders will review your credit score and other factors, including:

  • Income
  • Debt-to-income ratio
  • Employment history

A good credit score will help demonstrate to the lender that you’re a responsible borrower who pays their bills on time.

Note: A good credit score can help you secure a home equity loan or HELOC, but you may also need a certain amount of home equity to qualify. Be sure to research all the requirements for the loan you’re considering to ensure you meet the criteria.

How credit score affects the terms of a home equity loan or HELOC

A borrower’s credit score can have a significant impact on the terms of a home equity loan or HELOC. Borrowers with excellent credit scores often get the most attractive terms, including the lowest interest rates and fees

Borrowers with good credit scores may still be eligible for attractive terms, but the interest rate and fees may be higher than for borrowers with excellent credit scores. 

Borrowers with fair credit scores may qualify for a HELOC or home equity loan but will likely receive less favorable terms than borrowers with good or excellent credit scores. Interest rates may be higher, and the amount they can borrow may be lower

Those with poor credit scores should opt for other loan options (more on that below) because they’re likely to be denied by most HELOC and home equity loan lenders. 

Can I get a home equity loan or HELOC with a low credit score?

It isn’t impossible to get a home equity loan or HELOC with a low credit score, but it’s more complicated. Lenders are more willing to approve a loan or HELOC if the borrower: 

  • Has a good credit history and a stable income
  • Can provide substantial collateral
  • Has a low debt-to-income ratio

Certain lenders may be willing to work with borrowers who have lower credit scores if they provide additional financial documents to prove their ability to make loan payments or are willing to work with a cosigner. 

What happens if I can’t qualify for a home equity loan or HELOC due to my credit score?

If you’re ineligible for a home equity loan due to your credit score, you may need to look into other financing options, such as: 

  • Refinance your mortgage
  • Take out a personal loan
  • Research government-backed loan programs

You can also take steps to improve your credit score over time, which could make you eligible for a home equity loan or HELOC later.

How to improve your credit score before you apply

Improving your credit score is one of the best ways to ensure your home equity loan application gets approved because it’s a significant decision-making factor for lenders. 

To improve your credit, make sure you do the following:

  • Pay down debt: If you have debt, start paying it down. A low debt-to-credit ratio will benefit your credit score. 
  • Keep credit card balances low: If you have credit cards, try to keep the balances below 30% of your available credit limit
  • Make payments on time: On-time payments are among the most critical factors in improving your credit score. Late payments can damage your credit score and saddle you with hefty fees. 
  • Don’t open too many new accounts: Opening several accounts simultaneously can hurt your credit score. It shows lenders you’re always in the market for credit, which they may not view as a healthy money habit. 
  • Dispute errors on your credit report: If you find any errors on your credit report, be sure to dispute them. This can boost your credit score.

Consider alternative financing options

Home equity loans and HELOCs offer borrowers a favorable option to borrow funds. However, those who anticipate difficulty paying back the loan or those with bad credit may want to consider other funding sources. 

Your home secures HELOCs and home equity loans, so not making payments jeopardizes your home ownership. 

Personal loans 

Personal loans are unsecured loans from banks, credit unions, and online lenders. These loans often come with fixed interest rates and repayment terms of one to five years. 

The borrower receives a lump sum and pays it back in installments with interest. As their name suggests, you can use these loans for almost any purpose. 

The interest rate and repayment terms on personal loans may vary depending on the lender and the borrower’s creditworthiness. 

Cash-out refinance 

In a cash-out refinance, the borrower takes out a new mortgage loan to pay off their current mortgage. 

The loan is for a higher amount than the current mortgage. The borrower gets the difference in cash, which they can use for home improvements, debt consolidation, or other personal expenses. 

The new loan may have a lower interest rate than the original mortgage loan, and the borrower can often borrow up to 80% of the home’s value. 

Peer-to-peer loans 

Peer-to-peer loans are loans from individual lenders, often through online platforms. Investors fund these loans in exchange for a return. 

For the borrower, the loan operates in much the same way others do. They’re unsecured and often come with fixed interest rates and repayment terms. They can appeal to borrowers with good credit due to their competitive interest rates and more flexible repayment terms than traditional lenders.

Credit cards 

Credit cards are a way to borrow up to a certain amount and then pay it back over time with interest. 

Credit cards include a wide range of interest rates and repayment terms. They’re a convenient way to cover short-term expenses but can be expensive if you don’t pay off the total balance every month.

Tap into your retirement savings

If you have an IRA or 401(k), you may be able to take out a loan from the account. Loans from these accounts are often tax-free, but you’ll pay interest and must make regular payments. 

Tapping into your retirement savings should be a last resort, but it may be a better option for some. In this case, your home doesn’t secure the loan.