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ABC Finance » Home Equity Line Of Credit » Bad Credit HELOC
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in home finance

Navigating the financial landscape with a blemished credit history can be daunting. However, even with poor credit, there are avenues available for homeowners seeking to leverage their home’s equity.

This guide will delve deep into the intricacies of obtaining a Home Equity Line of Credit (HELOC) when faced with credit challenges.

We’ll explore the definition, benefits, potential pitfalls of HELOCs, and how a low credit score can influence your application.

How to Get a Home Equity Line of Credit With Bad Credit

Embarking on the journey to secure a HELOC with a less-than-stellar credit history might seem like a steep uphill battle. While challenges are undeniable, the landscape isn’t entirely bleak.

There are credit lenders who specialise in assisting individuals with low credit, but it’s crucial to tread carefully to avoid unscrupulous lenders.

Let’s delve into the world of HELOCs and understand how one can navigate this path even with credit hiccups.

What is a Home Equity Line of Credit (HELOC)?

A Home Equity Line of Credit, commonly referred to as HELOC, is a type of loan that allows homeowners to borrow against the equity in their home. Here’s a closer look:

  • Primary Functions of HELOC:
    • Flexibility: Unlike a traditional home equity loan, a HELOC functions much like a credit card. It provides a revolving line of credit that you can draw from as needed.
    • Variable Interest Rate: Most HELOCs come with a variable interest rate, which means the rate can fluctuate over time.
  • Benefits of HELOCs:
    • Access to Funds: A HELOC provides homeowners with a flexible source of funds, which can be especially useful for large expenses or debt consolidation.
    • Potential Tax Benefits: The interest paid on a HELOC might be tax-deductible, though it’s essential to consult with a tax professional.
  • Potential Risks:
    • Overborrowing: Given its credit card-like nature, some individuals might be tempted to borrow more than they can repay.
    • Fluctuating Payments: With variable interest rates, monthly payments can increase, potentially straining your budget.


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Fixed fees regardless of loan amount

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How Does Bad Credit Affect Your HELOC Application?

Having a low credit score can undoubtedly cast a shadow over your HELOC application. Here’s how:

Implications on Application:

  • Higher Scrutiny: Lenders might take a closer look at your credit report, examining any late payments, defaults, or other red flags.
  • Limited Options: Not all lenders are willing to offer HELOCs to individuals with bad-credit. This can limit the pool of potential lenders.

Potential Interest Rates and Terms:

  • Higher Interest Rates: Generally, applicants with lower credit scores might face higher interest rates. This is because they’re often perceived as high-risk borrowers by lenders.
  • Stricter Terms: The terms and conditions of the HELOC might be more stringent. This could include a lower maximum borrowing limit or higher minimum monthly payments.

How to Improve Your Chances of Getting a HELOC With Bad Credit

Securing a HELOC with poor credit might seem like a daunting task, but with the right strategies, it’s entirely possible to enhance your creditworthiness. Here’s how:

  1. Review Your Credit Report: Regularly checking your credit report can help identify any discrepancies or errors. If you spot any, promptly report them for correction. Remember, every point on your credit score counts.
  2. Timely Payments: Ensure you’re making all your payments, be it credit cards or loans, on time. Late payments can significantly dent your credit history.
  3. Reduce Outstanding Debts: Aim to lower your credit card balances and other outstanding loans. This not only improves your credit score but also signals to heloc lenders that you’re financially responsible.
  4. Seek Credit Repair Services: Consider working with a credit repair agency. They can offer guidance on improving your credit and disputing inaccuracies.
  5. Limit New Credit Inquiries: Each time you apply for credit, it can slightly reduce your credit score. So, be judicious about where and when you apply.
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How does a HELOC work?

A HELOC operates somewhat differently from traditional loans:

  • Structure: It provides a revolving line of credit, much like a credit card. You can borrow up to a certain limit, repay, and borrow again.
  • Repayment: Typically, there’s a draw period where you only pay interest on the amount you’ve borrowed. After this period, you’ll start repaying both the principal and interest.
  • Interest Rate: HELOCs usually come with variable interest rates, which means they can fluctuate over time.

Understanding Bad Credit

Bad credit isn’t just a number; it’s a reflection of one’s financial history. It indicates to lenders how risky it might be to lend money to an individual. Factors like late payments, high levels of debt, and defaults can contribute to a lower credit score, limiting financial opportunities and borrowing potential.

Factors that Impact Your Credit Score

Your credit score isn’t derived from a single factor. Instead, it’s a combination of several elements:

  1. Payment History (35%): This is the record of your payments on loans and credit cards. Timely payments boost your score, while late payments harm it.
  2. Credit Utilization (30%): This refers to how much of your available credit you’re using. A lower percentage is better.
  3. Length of Credit History (15%): Lenders like to see a long history of responsible credit use.
  4. New Credit (10%): This includes recent credit inquiries and newly opened credit accounts.
  5. Types of Credit (10%): A mix of credit cards, retail accounts, installment loans, and more can benefit your score.

Improving each of these factors can pave the way for a better credit rating, opening doors to a range of financial opportunities, including securing a HELOC even with challenges in your credit history.

How Your Credit Score Impacts a HELOC Application

Your credit score, that all-important number, plays a pivotal role when applying for a HELOC. Let’s delve into how different credit score ranges can influence the outcome:

  • Excellent Credit (750 and above): With a score in this range, you’re in a prime position to secure favorable terms, including lower interest rates and higher borrowing limits.
  • Good Credit (700-749): Still a commendable range, you can expect fairly good terms, though perhaps not as favorable as those with excellent credit.
  • Fair Credit (650-699): Here, you might face slightly higher interest rates. However, with other strong financial indicators, you can still secure a HELOC.
  • Low Credit (600-649): This is where things get a bit tricky. While not impossible, expect higher interest rates and perhaps stricter terms.
  • Poor Credit (below 600): Securing a HELOC in this range can be challenging. You might need to explore credit lenders specializing in bad-credit applications.

Lenders don’t just look at the number. They consider the entire credit report, examining factors like payment history, credit utilization, and the length of credit history to make their decision.

Can You Get a HELOC with a Low Credit Score?

While a suboptimal credit score can pose challenges, it’s not the end of the road. Lenders often look beyond just the credit score:

  • Home Equity: The amount of equity you have in your home can be a significant factor. A higher equity might offset a lower credit score.
  • Debt-to-Income Ratio: Lenders prefer applicants with a lower ratio, indicating you’re not overwhelmed with debt.

Remember, while it’s possible to get a HELOC with low credit, you might face higher interest rates or stricter terms.

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Applying for a HELOC with Bad Credit

Embarking on the HELOC application journey with bad credit? Here’s a step-by-step guide:

  1. Research Lenders: Not all heloc lenders are created equal. Some specialize in helping those with bad credit.
  2. Gather Documentation: Prepare essential documents like proof of income, credit report, property valuation, and more.
  3. Consult a Financial Advisor: They can offer insights tailored to your situation.
  4. Apply: Once everything’s in order, submit your application. Remember, multiple applications can hurt your credit score, so choose wisely.

Pros and Cons of Getting a HELOC with Bad Credit


  • Access to funds for debt consolidation, home improvements, or other needs.
  • Potential for credit repair by making timely payments.
  • Flexibility similar to a credit card.


  • Higher interest rates.
  • Stricter terms and conditions.
  • Risk of falling prey to unscrupulous lenders.

Alternative Financing Options

If a HELOC seems out of reach, fret not. There are other avenues:

  • Personal Loans: Especially useful for short-term needs. However, they might come with higher interest rates.
  • Secured Loans: These require collateral but can offer better terms.
  • Credit Cards: Some are designed for those with bad credit, serving as a stepping stone to rebuild credit.


Navigating the world of HELOCs, especially with a tarnished credit history, can be filled with questions.

Here, we’ve compiled some frequently asked questions to shed light on common concerns.

For borrowers in the UK, understanding your credit score is the first step before diving into any loan application, including a HELOC. Here’s how you can check:

  1. Credit Reference Agencies (CRAs): In the UK, there are three main CRAs: Experian, Equifax, and TransUnion. Each of these agencies can provide you with a statutory credit report.
  2. Online Services: Websites like ClearScore (which uses Equifax data) and Credit Karma (using TransUnion data) offer free access to your credit score and report.
  3. Direct Request: You can directly request a statutory credit report from any of the CRAs. This is free of charge and can be done once a year.
  4. Review for Discrepancies: Once you have your credit report, review it for any inaccuracies. If you spot any, you can raise a dispute with the respective CRA.

Remember, checking your own credit score doesn’t impact it, so it’s a good practice to regularly review and understand where you stand.

Absolutely, like any financial product, there are risks to be aware of:

  • Higher Interest Rates: With bad credit, you might be offered a HELOC with a higher interest rate, meaning you’ll pay more over the loan’s life.
  • Stricter Terms: You might face stricter terms, such as a lower credit limit or higher minimum payments.
  • Potential for Further Debt: Given the revolving nature of a HELOC, there’s a risk of accumulating more debt, especially if you’re not disciplined in your spending.

Having a default on your credit report can be a red flag for lenders. However, it doesn’t automatically disqualify you from obtaining a HELOC. Lenders will consider:

  • Age of the Default: Older defaults, especially those nearing their six-year mark (after which they drop off your credit report in the UK), might be viewed less harshly.
  • Equity in the Home: A significant amount of equity in your home can offset the negative impact of a default.
  • Other Financial Indicators: Lenders will also consider your current income, debt-to-income ratio, and other financial factors.

It’s essential to be upfront about the default and provide any relevant context when applying.

A County Court Judgment (CCJ) can make obtaining a HELOC more challenging, but not impossible. Much like a default, lenders will consider:

  • Age of the CCJ: If the CCJ is older and you’ve since demonstrated financial responsibility, it might be viewed less critically.
  • Settled vs. Unsettled CCJs: A settled CCJ, where the owed amount has been paid, is better than an unsettled one.
  • Overall Financial Picture: Lenders will look at the broader financial picture, including income, other debts, and, importantly, the equity in your home.

Always consult with a trusted financial advisor or heloc lender to understand your options and the best way forward.

About the author

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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in home finance

Gary is an experienced finance professional who holds CeMAP, CeFA, CeRGI and CSP qualifications. He has a well rounded background across financial services and has worked with commercial finance, bridging loans, financial advice, pensions and insurance throughout his career.

These days, Gary heads up a lot of the operations at ABC Finance, works closely with the team and leads our work to build and integrate new technology to the business.

He regularly appears in and writes for the press including local and national news, trade publications and specialist business news.