Getting a Home Equity Line of Credit (HELOC) With Bad Credit

Accessing financing when you have bad credit can be a frustrating experience. Whether you’re
borrowing to pay off medical debts, make improvements to your home, or cover major life
expenses, traditional lenders may be hesitant if your credit history is less than ideal. However,
while qualifying for products like a HELOC with bad credit can be more difficult, it is still possible
under the right circumstances.

Getting a HELOC with bad credit may be achievable for some homeowners, but requirements,
pricing, and risk exposure are often less favorable than for borrowers with strong credit. Below,
we explain how HELOCs work for borrowers with bad credit, what lenders look for, the risks
involved, and alternative ways to access home equity.

On this page:

• Typical eligibility requirements for a HELOC
• HELOC risks you should know about
• How to improve your credit score for a HELOC
• Not sure a HELOC is right for you? Check out these alternatives

Eligibility Requirements for a HELOC with Bad Credit

A Credit Score of 620 or Higher

Many lenders continue to require a minimum credit score around 620 for HELOC approval. Some credit unions or smaller community banks may consider applicants below that threshold, but approvals become increasingly selective as scores decline.

If your credit score is below 620, lenders typically expect stronger compensating factors such as high equity, stable income, or a low debt-to-income ratio.

Income Stability

Lenders want to see consistent, verifiable income. Self-employed borrowers or those with non-traditional income sources may still qualify, but documentation requirements are often stricter—especially when credit is weak.

Payment History

Payment history remains one of the most influential factors in HELOC underwriting. Late payments, collections, or charge-offs can significantly reduce approval odds unless offset by other strong financial indicators.

Home Equity

Most lenders require homeowners to retain at least 20% equity, meaning a maximum loan-to-value (LTV) ratio of roughly 80%. In tighter lending environments, some institutions may cap combined LTV even lower for borrowers with bad credit.

Debt-to-Income Ratio (DTI)

Many lenders prefer a DTI below 43%, though lower is always better. Some borrowers may still qualify with DTIs around 40% (or higher) depending on income stability, credit profile, and available equity. Borrowers with bad credit generally need lower DTIs to help offset perceived risk.

To learn more about your debt-to-income ratio and how you can lower it, check out our detailed guide.

Can You Get a HELOC with a 580 Credit Score?

Qualifying for a HELOC with a 580 credit score is challenging but not impossible. In these cases, lenders weigh the full financial picture more heavily, including income stability, equity position, and recent payment behavior.

Borrowers with scores below 620 often need stronger compensating factors, such as substantial home equity or long-term, stable employment, to be considered.

Risks of Getting a HELOC with Bad Credit

Just because you can get a HELOC with bad credit doesn’t mean you should. Let’s take a look at some of the risks that you could face after getting a HELOC for bad credit:

Risk of Foreclosure

A HELOC is secured by your home. Missing payments can place your property at risk of losing your home to foreclosure, making it critical to borrow only what you can realistically repay.

Variable Interest Rates

HELOCs typically have variable interest rates, which fluctuate based on broader market conditions and Federal Reserve policy. While rates may decline over time, borrowers remain exposed to potential increases, which can significantly raise monthly payments.

In 2026, lenders continue to price HELOCs conservatively, and borrowers with bad credit often receive rates well above advertised averages.

Balloon or Payment Shock Risk

Some HELOCs allow interest-only payments during the draw period, followed by significantly higher payments during repayment. This transition can strain household finances if not planned for carefully.

Closing Costs

Closing costs for a HELOC can range from low/no-cost to several hundred dollars (or more), depending on the lender and appraisal requirements.

Additional Credit Impact

Taking on new secured debt can further strain a weak credit profile if payments are missed, making future financing even more difficult.

Steps to Improve Your Chances of Qualifying

If you’ve considered the risks and think a HELOC is the right financial choice for you, consider taking these steps before you apply.

1. Review your credit report for errors and address any inaccuracies.

What if your credit score has been damaged by something you didn’t do? Although it’s rare, you should check your credit report for any inaccurate information and report it accordingly. Additionally, checking your report can show you credit lines that are in need of extra attention.

2. Lower your DTI by paying down revolving debt where possible.

Your DTI will influence the size of the HELOC you can qualify for, so it’s vital you know yours. Lowering it by paying off credit cards or eliminating any other debts can help you qualify for a HELOC even if you have bad credit..

3. Prepare for a home appraisal, which typically costs several hundred dollars.

To get a HELOC, you’ll need your home to be appraised. This will determine your loan-to-value ratio (or how much your home is worth vs. how much you owe on it). Some lenders require a full appraisal ($400–$700+), while others use automated valuations (AVMs).

4. Consider a cosigner, but only if repayment plans are clear and realistic.

You might be able to qualify for a HELOC more easily if you bring on a cosigner with better credit than you. However, keep in mind that your cosigner will be liable if you’re unable to make the loan payments. This could forever damage your relationship with them, so only use a cosigner if it’s essential and you have a concrete plan for making payments.

5. Explore smaller banks or credit unions, which may apply more flexible underwriting criteria.

As we mentioned earlier, smaller banks or credit unions might be able to make offers that large lending institutions can’t. You may be able to leverage your history with them to qualify for a HELOC or better loan terms by reminding them of how responsibly you paid back loans with them in the past.

HELOC Alternatives for Bad Credit

If you have bad credit and aren’t sure that a home equity line of credit (HELOC) is right for you, you might want to know if you have other options. Some potential solutions for home financing with bad credit include:

1. Home Equity Loans

Much like a HELOC, home equity loans give you the option to borrow against the equity in your home. The size of the loan you can receive is based on the difference between the current market value of the home and the outstanding mortgage balance.

Home equity loans typically offer fixed rates, predictable payments, and lower interest rates than many other borrowing options like HELOCs, but they share many of the same risks too. As a secured loan, you could still lose your home to foreclosure if you fall behind on your payments.

2. Cash-Out Refinancing

With cash-out refinancing, you get a new, higher-balance mortgage that replaces your old one. You’d then be able to use the difference between those two mortgages in any way that you’d use the funds from a home equity loan.

Credit requirements are often higher, but rates may be lower than HELOCs in some scenarios.

3. Personal Loan

Personal loans are unsecured and avoid foreclosure risk, though they usually carry higher interest rates.

4. SKYDAN’s Home Equity Partner Solution

SKYDAN offers an alternative for a HELOC that does not involve lending or monthly loan payments. As a real estate investment firm, not a bank or mortgage company, SKYDAN evaluates opportunities based primarily on home equity rather than credit score, income, or DTI.

Under SKYDAN’s residential sale-leaseback program:

• SKYDAN purchases your home while you remain in place.
• You lease the home back for up to two years.
• Rent is deferred, meaning no monthly payments during the agreement.
• At the end of the term, you may repurchase the home or sell it at market value and retain any additional equity.

This structure can be an option for homeowners facing financial constraints who do not qualify for traditional financing.

Final Thoughts on a HELOC Loan

While it may still be possible to get a HELOC with bad credit in 2026, the risks and costs are significant. Careful evaluation of affordability, interest rate exposure, and long-term financial goals is essential. Exploring alternatives—especially those that do not involve new debt—can help homeowners make more sustainable decisions.